mykeystrokes.com

"Do or Do not. There is no try."

“Holding Corporate Monarch’s Accountable”: Steering America Toward A More Secure Retirement

To the let’s-cut-entitlements crowd, what’s wrong with America is that seniors are living too high off the hog. With the cost of medical care still rising (though not as fast as it used to), the government is shelling out many more dollars per geezer (DPG) than it is per youngster (DPY). The solution, we’re told, is to bring down DPG so we can boost DPY.

We do indeed need to boost DPY. And we need to rein in medical costs by shifting away from the fee-for-service model of billing and paying. But as for changing the way we calculate cost-of-living adjustments for seniors to keep us from overpaying them — an idea beloved of Bowles, Simpson, Republicans and, apparently, the White House — this may not be such a hot idea, for one simple reason: An increasing number of seniors can’t afford to retire.

Nearly one in five Americans age 65 and over — 18.5 percent — were working in 2012, and that percentage has been rising steadily for nearly 30 years. In 1985, only 10.8 percent of Americans 65 and older were still on the job, and in 1995, that figure was 12.1 percent.

Both good news and bad news have contributed to this increase. The good news is that more seniors both can and want to work than in years past, as health care and medical science have extended their capabilities, and as the share of Americans in desk jobs has increased while the number on the factory floor has shrunk. A 2011 survey by the Society of Actuaries reported that 55 percent of working seniors said they had stayed employed because they wanted to stay active and involved. But the same survey showed that 51 percent were working because they needed the money.

What advocates for reducing Social Security adjustments fail to consider is that corporate America’s shift away from defined-benefit pensions to defined-contribution 401(k) plans — or to no retirement plans at all — has diminished seniors’ non-Social Security income and made the very idea of retirement a far more risky prospect. Today, more than half of U.S. workers have no workplace retirement plan. Of those who do, just 35 percent still have defined-benefit pensions. In 1975, 88 percent of workers with workplace retirement plans had defined-benefit pensions.

The shift from traditional pensions to 401(k)s is one of the main reasons most seniors aren’t able to set aside enough income to guarantee a secure retirement. A 2010 survey by the Federal Reserve found that the median amount saved through 401(k)s by households approaching retirement was $100,000 — not nearly enough to support those households through retirement years, as seniors’ life expectancy increases. And as most Americans’ wages continue to stagnate or decline, their ability to direct more of their income to 401(k)s diminishes even more.

With the eclipse of the defined-benefit pension, Social Security assumes an even greater role in the well-being of American seniors. But advocates of entitlement cuts don’t even discuss the waning of other forms of retirement security: Listening to Alan Simpson, you’d never know that America’s elderly aren’t getting the monthly pension checks their parents got.

And it’s not as if those employers are suffering. Just as U.S. businesses have been able to raise the share of corporate profits to a half-century high by reducing the share of their workers’ wages to a half-century low, so, too, their ability to reduce pension payments has contributed not just to their profits but also to the $1.7 trillion in cash on which they are currently sitting.

So here’s a modest plan to enable seniors to retire when they wish, rather than having to work into their 70s and even beyond: Require employers to put a small percentage of their revenue, and a small percentage of their workers’ wages, into a private, portable, defined-benefit pension plan. To offset the increased costs, transfer the costs of paying for workers’ health care from employers and employees to the government, and pay for the increased costs to the government with the kind of value-added tax that most European nations levy. (The tax burden is higher in Europe, but because the level of benefits is higher as well, the tax has wide public support.)

The odds of such a plan being enacted today, of course, are nil. (Then again, the odds of any bill getting through Congress these days are close to nil.) But until we compensate for, or reverse, the abdication of corporate America from any major role in providing its workers with retirement security, we should lay off monkeying with Social Security to reduce the program’s future payments. As for all those cash-drenched chief executives who proclaim that we must cut entitlements, how about they make up the difference by restoring the pensions their companies slashed?

 

By: Harold Meyerson Opinion Writer, The Washington Post, March 6, 2013

March 9, 2013 Posted by | Seniors, Social Security | , , , , , , , | Leave a comment

Don’t Try This At Home But, How You Can Pull A General Electric On Taxes

There’s been a firestorm this week over the news that General Electric will pay no tax—at least, no federal corporate income tax—on last year’s profits.

But if you’re like a lot of people, your first reaction was probably: “Hmmm. How can I get that kind of deal?”

If General Electric pays close to zero in Federal Income taxes, can you? Brett Arends tells Kelsey Hubbard how even a “regular Joe” can lower their tax bill, especially if they are self-employed.

You’d be surprised. You might. And without being either a pauper or a major corporation.

I spoke to Gil Charney, principal tax researcher at H&R Block‘s Tax Institute, to see how a regular Joe could pull a GE. The verdict: It’s more feasible than you think—especially if you’re self-employed.

Let’s say you set up business as a consultant or a contractor, something a lot of people have been doing these days. And, to make this a challenge on the tax front, let’s say you do well and take in about $150,000 in your first year.

First off, says Mr. Charney, for 2010 you can write off up to $10,000 in start-up expenses. (In subsequent years it’s only $5,000.)

Okay, let’s say you claim $7,000. That takes your income down to $143,000.

You can also write off all legitimate business expenses. Mr. Charney emphasizes that this only applies to legitimate expenses.

He didn’t say, but everyone seems to understand, that this can be quite a flexible term. Even if you buy a computer, a cellphone and a car primarily for business use, you can use them for personal purposes as well. If you happen to take a business trip to Florida in, say, January, no one is going to stop you from enjoying the sunshine or taking a dip in the pool.

So let’s say you manage to write off another $10,000 a year in business expenses.

That brings your income, for tax purposes, down to $133,000.

You’ll have to pay Medicare and Social Security taxes (just like GE). Because you’re self-employed, you have to pay both sides: the employee and the employer. That will come to about $19,000.

However, you can deduct half of that, or $9,500, from your taxable income. So that brings your total down to $123,500 so far.

Now comes the creative bit. The self-employed have access to terrific tax breaks on their investment and retirement accounts. The best deal for many is going to be a self-employed 401(k), sometimes known as a Solo 401(k).

This will let you save $43,100 and write it off against your taxes. That money goes straight into a sheltered investment account, as with a regular 401(k).

Why $43,100? That’s because with a Solo 401(k), you’re both the employer and the employee. As the employee you get to contribute a maximum of $16,500, as with any regular 401(k). But as the employer you also get to lavish yourself with an incredibly generous company match of up to 20% of net income.

Yes, being the boss has its privileges. (And if you’re 50 or over, your limit as an employee is raised from $16,500 each to $22,000.)

You can save another $10,000 by also contributing to individual retirement accounts—$5,000 for you, $5,000 for your spouse. If you use a traditional IRA, rather than a Roth, that reduces your taxable income as well. If you’re 50 or over, the limit rises to $6,000 apiece.

If you contribute $43,100 to your Solo 401(k), and $10,000 to two IRAs, that brings your income for tax purposes down to just over $70,000.

We haven’t stopped there either, says Mr. Charney.

Now come the usual itemized deductions. You can write off your state and local taxes. Let’s say these come to $10,000.

You can write off interest on your mortgage. Call that another $10,000. That’s enough to pay 5% interest on a $200,000 home loan.

That gets us down to about $50,000 And we’re not done.

If you’re self-employed, health insurance is probably a big headache. But the news isn’t all bad. You can write off the premiums for yourself, your spouse, and your kids.

And if you use a qualifying high-deductible health insurance plan—there are a variety of rules to make sure a plan qualifies—you get another break. You can contribute $3,050 a year into a tax-sheltered Health Savings Account, or $6,150 for a family. You can write those contributions off against your taxable income. The investments grow sheltered from tax. And if you spend the money on qualifying health costs, the withdrawals are tax-free as well.

So call this $10,000 for the premiums and $6,150 for the HSA contributions. That gets your income, for tax purposes, all the way down to about $34,000.

If you have outstanding student loans, you can write off $2,500 in interest. And you can write off $4,000 of your kid’s college tuition and fees.

Then there’s a personal exemption: $3,650 per person. If you’re married with one child, that’s $10,950.

Taxable income: just under $17,000. That’s on a gross take of $150,000. You’d owe less than $1,700 in federal income tax.

And it doesn’t stop there. Because now you can bring in some of the tax credits. Unlike deductions, these come off your tax liability, dollar for dollar.

GE got big write-offs related to green energy. There are some for you too, although on a small scale. You can claim credits for things like installing solar panels, heat pumps or energy-efficient windows or boilers in your home. Let’s say you use a home equity loan to pay for the improvements and take the maximum $1,500 write-off.

That gets your tax liability down to $200.

Can we get rid of that? Sure, says Mr. Charney.

If your spouse spends, say, $1,000 on qualifying adult-education courses or training programs, you can claim $200, or 20% of the cost, in Lifetime Learning Credits. (The maximum is $2,000.)

That wipes out the remaining liability.

Congratulations. You’ve pulled a GE. You owe no federal income taxes at all.

OK, it’s just an illustration. Few will be quite so fortunate. On the other hand, it’s not comprehensive either. There are plenty of other deductions and credits we didn’t mention. You could have written off up to $3,000 by selling loss-making investments. Your spouse may be able to use a 401(k) deduction as well. There are lots of ways to tweak the numbers.

In this case, you’ve paid no federal income tax, and meanwhile you’ve saved $19,000 toward your retirement through Social Security and Medicare, and $53,000 through your 401(k) and IRAs. You’ve paid most of your accommodation costs (that is, the interest and property taxes on your home), covered your health-care costs and quite a lot of personal expenses through your business account, paid $4,000 toward your child’s college costs and had about $2,000 a month left over for cash costs.

Who says GE has all the fun?

By: Brett Arends, The Wall Street Journal, April 1, 2011

April 4, 2011 Posted by | Big Business, Corporations, General Electric, Medicaid, Medicare, Politics, Tax Credits, Tax Evasion, Tax Liabilities | , , , , , , , , | Leave a comment

   

%d bloggers like this: