Category Archives: Economics

The Rich Pay All the Taxes

Posted on by

Jane Wells reported last December on CNBC that the Congressional Budget Office had issued a report analyzing the amount of taxes paid by the “five tiers of wage earners” for 2010.The report doesn’t seem to indicate that the rich are getting away without paying their fair share, although those who advocate there is income inequality will find ammunition for their argument if they read deeper into the report. The report presents the statistics on payment of taxes by the different income groups in a variety of graphs and written discussions. (The report is overly long and not written to keep your attention, but it contains thought-provoking information.) Table 3 on page 13 shows the lowest wage-earning quintile pays 0.4% of all federal taxes, the second quintile pays 3.8%, the third 9.1%, the fourth 17.6% and the top quintile pays 68.8%.

The report includes the interesting kicker that the top three quintiles pay all the taxes!  Page 11 of the report says, “Much of the progressivity of the federal tax system derives from the individual income tax. In 2010, the lowest quintile’s average rate for the individual income tax was -9.2 percent and the second income quintile’s rate was -2.3%…(A group can have a negative income tax rate if its refundable tax credits exceed the income tax otherwise owed.)…For example, although the lowest quintile’s average rate for individual income tax was about -9 percent, more than one-quarter of the households in that quintile had an average rate below -15 percent, more than one-quarter had a rate of zero or higher, and nearly half had an average rate between -15 percent and zero.” Continue reading →

Beware of Pension Predators

Posted on by

There is valuable information in an article by Marsha Mercer for retirees struggling to pay their living expenses. Many didn’t save enough for retirement and some who did save and invest were driven from the stock market with heart-breaking losses during the financial crisis. Many of those didn’t get back in the market, which would have resulted in them recovering the losses. They probably instead put their money in “safe investments”, such as insured certificates of deposit (CDs). The Federal Reserve policies have driven those kinds of investments to paying interest rates that are below the rate of inflation. Putting money in a CD or similar relatively safe instruments at this moment in time is like saying to the banker, “Take my money and give me almost all of it back when the certificate matures.” The result is that many retirees are looking for ways to pay monthly expenses without the help of income from investments.

There have been a slew of ads on television targeting retirees.  The ads tell people they don’t have to wait to get their money from retirement programs or structured settlements.  Mercer’s article warns against jumping at those offers. It describes a retiree beset by bills that “…arranged to get a cash advance in exchange for signing over most of his $1,083 monthly pension for eight years.” He agreed to pay $1,070 a month in return for money up front. The cost for the $42,131 cash advance was $102,720. He was named the lead plaintiff in a suit against the company and the judge ordered all the people could stop making payments and that the retirees would be repaid nearly $3 million. The company declared bankruptcy and none of the victims were paid anything. Continue reading →

Social Security Private Accounts

Posted on by

There was a commentary posted February 1, 2012 about George W. Bush’s proposal to allow young people to voluntarily invest a third of their Social Security “contributions” into private accounts. That was successfully vilified as a proposal to “privatize Social Security.” The attacks were based on the lie that the proposal would reduce monthly payments to people already receiving benefits. Older people are dependable voters, and politicians scrapped an idea that would have been wonderful for younger workers.

I wrote in the earlier commentary what would have happened if the proposal had been passed by Congress. Workers could have put the proposed one third or their Social Security “contributions” into a private account invested in an S&P 500 index fund beginning in 2005. There is no doubt 2008 was a scary year for investors. Workers earning $50,000/year would have invested about $8300 into their private account from when the change was proposed. That investment would have dropped in value to about $5700 at the low point of the financial crisis. That would scare anyone! However, what would have happened if the hypothetical investor had the guts to continue to invest two percent of their $50,000 earnings as the market dropped and beyond? The monthly “dollar averaging” investments would have bought more shares in the S&P 500 index fund, and that would have had a powerful effect on the current value of the account.   Continue reading →

Social Security Debt Collection

Posted on by

There was a recent media dust-up over the Social Security Administration seizing tax refunds to recoup over-payments that happened more than a decade ago. However, Stephen Ohlemacher of the Associated Press explained that the program would be halted at least temporarily in his article titled “Social Security halts effort to collect old over-payments.” A 2008 law allows use of a “…Treasury program to seize federal payments to recoup debts that are more than 10 years old. Previously, there was a 10-year limit on using the program.”  “The Social Security Administration says it has identified about 400,000 people with old debts. They owe a total of $714 million.” Some of the disputed benefits were paid to surviving parents or guardians of children eligible for survivor benefits or the benefits paid to a disabled child. The agency says it has already collected $55 million, and at least some of it was collected from children and grandchildren of those who were overpaid. Continue reading →

The Predictable Surprise

Posted on by

book cvr_ predictable surpriseThe subtitle of this book by Sylvester J. Schieber is “The Unraveling of the U.S. Retirement System.” The book is neither a fun nor easy book to read (unless you are a compulsive accountant). However, you should consider the book if you want to know about the history and current status of Social Security and other retirement plans. Sadly, I must say the book does not have easy answers for how we can get our politicians to address some daunting problems. The dust cover explains, “Social Security is projected to deplete its funds in the 2030s. Pensions from previous generations have either disappeared or been completely reengineered…Americans are faced with the conundrum of how to pay for a growing retired population with dwindling financial resources.” The author believes privatizing part of Social Security would be a good first step, but has given up on that idea because politicians have made it a toxic idea.

I consider the most important part of the book to be a series of quotes made by Barack Obama at a roundtable discussion with the editorial board of the Washington Post four days before his first inauguration. “As soon as the economic recovery takes place, then we’ve got to bend the curve and figure out how we get federal spending on a more sustainable path…We are going also to have a discussion about entitlements and how we get a grasp on those…As bad as these deficits that have already been run up have been, the real problem is with our long-term deficits, actually, have to do with our entitlement obligations…So we’re going to have to shape a bargain. This, by the way is where…some very difficult issues of sacrifice, responsibility, and duty are going to come in because what we have done is kick this can down the road and we are now at the end of that road. We are not in a position to kick it any further…I have told my folks, to some consternation on their part, that we have to signal seriousness in this by making sure that some hard decisions are made under my watch and not under somebody else’s because the usual game is to say, ‘well, here’s what is going to happen but, by the way, it just happens to start in the ninth year from now.’ What we have to signal is that we are willing to make hard decisions now.”  (This passage is on pages 373-374 of the hard cover book I read. I’m providing a link to the full recorded statement.) Continue reading →

Fooled by Randomness

Posted on by

bookcvr_fooled by randomnessThis book written by Nassim Nicholas Taleb was recommended by a reader who has given many worthwhile suggestions. That track record kept me reading a book I found to be frustratingly difficult. I do not recommend this book to anyone who wants to have a fun and easy read. The book was written by a very smart person who has contempt for people who don’t understand his wisdom. The kindest description is that he has supreme self-confidence, although “arrogant” works also. I was frustrated with the frequent passages that said something was to be explained in more detail in a future chapter. I was also frustrated by his lengthy references to ancient philosophers and poets. Taleb wants the reader to be impressed by his scholarly intellect.  I write this understanding that the author describes those who write reviews that are not fawningly positive as “idiots.” Continue reading →