Timely Topics - October 21, 2011

Timely Topics - October 21, 2011

We are committed to continuing education as well as keeping abreast of anything with a significant impact on your wealth management. Brief comments about topics of interest are as follows:

From 2000 to 2010, median income in the U.S. declined 7% after adjusting for inflation, according to Census Bureau data. That figure marks the worst 10-year performance in records going back to 1967.

The U.S. Labor department counts 14 million unemployed and 3.1 million job openings, or 4.6 jobless workers per job opening. Before the Great Recession, the ratio was 1.5. If every opening were filled instantly, there would still be over 10 million unemployed.

Helping a son or daughter make a Roth IRA contribution remains an excellent family wealth-building technique. With incomes down and high unemployment expected to last many years, parents worry about their children's long-term financial security. The technique can begin as early as the child's high school or college years if they have enough earned income from part-time jobs, summer jobs, etc. The allowable contribution is limited to $5,000 or the child's earned income, whichever is lower. Many students and younger adults don't need the tax deduction, so a non-deductible Roth contribution is normally preferred over a deductible contribution to a traditional IRA. Gift tax issues must be addressed if parents are making other significant annual gifts to the child.

Consumer prices rose .3% in September, leading to the first cost-of-living increase in two years in government benefits pegged to the inflation rate for the fiscal year ending September 30. Nearly 55 million Social Security retiree beneficiaries will see their checks increase 3.6% in January.

The deadline is approaching for the recently established Joint Select Committee on Deficit Reduction to report findings. Created by the Budget Control Act of 2011, which legislated the compromise of the bitter partisan battle over raising the U.S. debt limit, the 12-member Committee (frequently referred to as the "Super Committee") has until November 23 to act. The Budget Control Act raised the government's borrowing limit in stages. Initial increases of about $.9 trillion were accompanied by dollar-for-dollar spending cuts. For the goal of an adequate debt ceiling to last the U.S. until 2013, and therefore past the next presidential election, another $1.2 to $1.5 trillion in deficit reduction needs to be found, and this task is the responsibility of the Committee. The Committee, composed of six Democrats and six Republicans, must vote on a report containing findings, conclusions, and recommendations of the committee, as well as the estimates provided by the Congressional Budget Office (CBO) and legislative language in support of those recommendations, which must also contain a statement of the deficit reduction achieved over fiscal years 2012 through 2021. A majority of Committee members must approve the report and accompanying legislative language.

Other pertinent deadlines pursuant to the Budget Control Act are in December of this year. No later than December 2, 2011, if a majority of the Committee approves a report and legislative language, they must be transmitted to the President, Vice President, the Speaker of the House, and the majority and minority leaders of the House and Senate. No later than December 23, 2011, if the Committee approves a report and legislative language, it must be voted on by both the Senate and the House of Representatives. No amendments will be considered. If a majority of the Committee members fail to approve a report and legislative language, a sequestration process (i.e., across-the-board reductions) must be implemented, with annual cuts starting in 2013. The cuts will be split 50-50 between defense and domestic spending. The Obama Administration has said that if the Committee doesn't approve a report, or if Congress fails to pass the Committee recommendations, nearly $1 trillion of deficit reduction would be achieved, anyway, by letting the Bush-era tax cuts expire at the end of 2012. The threat of a Presidential veto of an extension of the Bush-era tax cuts would according to the Administration help force balanced deficit reduction recommendations from the Committee (i.e., tax increases and spending cuts).

Income tax planning continues to be a nightmare. In 2010, businesses and individuals weren't certain what tax rules would apply to them for 2011 and 2012 until December 17, when the 2010 Tax Relief Act was signed into law. That pattern of uncertainty until the very last minute is highly likely to be repeated again this year, making year-end tax planning, and tax planning for a longer horizon, a guessing game at best until at least the end of this year. If the Committee approves recommendations that include comprehensive tax reform, they are not likely to begin to go into effect until 2013. If that's the case, Congress still will need to address the host of tax breaks set to expire at the end of this year under current law (such as the research credit, the work opportunity tax credit, and the above-the-line deduction for qualified tuition and related expenses). Also, without yet another "patch," the higher alternative minimum tax (AMT) exemptions and ability to offset AMT with personal credits will both expire at the end of this year. If the Committee can't report out a recommendation, or Congress doesn't pass it, then the expirations would still have to be dealt with late this year or early next. And in 2012, there would be yet another bruising battle over the Bush-era tax cuts that are scheduled to expire at the end of 2012 under current law.

Home mortgage rates continue to fall and have reached historic lows. Refinancing can be advantageous if you have a variable rate loan, you have a fixed rate and have not refinanced in several years, or other related circumstances.

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		Timely Topics - October 21, 2011

		We are committed to continuing education as well as keeping abreast of anything with a significant impact on your wealth management. Brief comments about topics of interest are as follows: From 2000 to 2010, median income in the U.S. declined 7% after adjusting for inflation, according to Census Bureau data. That figure marks the worst 10-year performance in records going back to 1967. The U.S. Labor department counts 14 million unemployed and 3.1 million job openings, or 4.6 jobless workers per job opening. Before the Great Recession, the ratio was 1.5. If every opening were filled instantly, there would still be over 10 million unemployed. Helping a son or daughter make a Roth IRA contribution remains an excellent family wealth-building technique. With incomes down and high unemployment expected to last many years, parents worry about their children's long-term financial security. The technique can begin as early as the child's high school or college years if they have enough earned income from part-time jobs, summer jobs, etc. The allowable contribution is limited to $5,000 or the child's earned income, whichever is lower. Many students and younger adults don't need the tax deduction, so a non-deductible Roth contribution is normally preferred over a deductible contribution to a traditional IRA. Gift tax issues must be addressed if parents are making other significant annual gifts to the child. Consumer prices rose .3% in September, leading to the first cost-of-living increase in two years in government benefits pegged to the inflation rate for the fiscal year ending September 30. Nearly 55 million Social Security retiree beneficiaries will see their checks increase 3.6% in January. The deadline is approaching for the recently established Joint Select Committee on Deficit Reduction to report findings. Created by the Budget Control Act of 2011, which legislated the compromise of the bitter partisan battle over raising the U.S. debt limit, the 12-member Committee (frequently referred to as the "Super Committee") has until November 23 to act. The Budget Control Act raised the government's borrowing limit in stages. Initial increases of about $.9 trillion were accompanied by dollar-for-dollar spending cuts. For the goal of an adequate debt ceiling to last the U.S. until 2013, and therefore past the next presidential election, another $1.2 to $1.5 trillion in deficit reduction needs to be found, and this task is the responsibility of the Committee. The Committee, composed of six Democrats and six Republicans, must vote on a report containing findings, conclusions, and recommendations of the committee, as well as the estimates provided by the Congressional Budget Office (CBO) and legislative language in support of those recommendations, which must also contain a statement of the deficit reduction achieved over fiscal years 2012 through 2021. A majority of Committee members must approve the report and accompanying legislative language. Other pertinent deadlines pursuant to the Budget Control Act are in December of this year. No later than December 2, 2011, if a majority of the Committee approves a report and legislative language, they must be transmitted to the President, Vice President, the Speaker of the House, and the majority and minority leaders of the House and Senate. No later than December 23, 2011, if the Committee approves a report and legislative language, it must be voted on by both the Senate and the House of Representatives. No amendments will be considered. If a majority of the Committee members fail to approve a report and legislative language, a sequestration process (i.e., across-the-board reductions) must be implemented, with annual cuts starting in 2013. The cuts will be split 50-50 between defense and domestic spending. The Obama Administration has said that if the Committee doesn't approve a report, or if Congress fails to pass the Committee recommendations, nearly $1 trillion of deficit reduction would be achieved, anyway, by letting the Bush-era tax cuts expire at the end of 2012. The threat of a Presidential veto of an extension of the Bush-era tax cuts would according to the Administration help force balanced deficit reduction recommendations from the Committee (i.e., tax increases and spending cuts). Income tax planning continues to be a nightmare. In 2010, businesses and individuals weren't certain what tax rules would apply to them for 2011 and 2012 until December 17, when the 2010 Tax Relief Act was signed into law. That pattern of uncertainty until the very last minute is highly likely to be repeated again this year, making year-end tax planning, and tax planning for a longer horizon, a guessing game at best until at least the end of this year. If the Committee approves recommendations that include comprehensive tax reform, they are not likely to begin to go into effect until 2013. If that's the case, Congress still will need to address the host of tax breaks set to expire at the end of this year under current law (such as the research credit, the work opportunity tax credit, and the above-the-line deduction for qualified tuition and related expenses). Also, without yet another "patch," the higher alternative minimum tax (AMT) exemptions and ability to offset AMT with personal credits will both expire at the end of this year. If the Committee can't report out a recommendation, or Congress doesn't pass it, then the expirations would still have to be dealt with late this year or early next. And in 2012, there would be yet another bruising battle over the Bush-era tax cuts that are scheduled to expire at the end of 2012 under current law. Home mortgage rates continue to fall and have reached historic lows. Refinancing can be advantageous if you have a variable rate loan, you have a fixed rate and have not refinanced in several years, or other related circumstances.

		Back to Market Reviews