Category Archives: Politics

The “Sequeezter”: How the Coming Budget Cuts May Affect You

A recent USA Today poll revealed that about 25% of Americans know little to nothing about the sequester–the mandatory across-the-board budget cuts set to be instituted on March 1 (that’s next week by the way).  This is alarming since these budget cuts could affect us on a daily basis and could make life pretty inconvenient.  Probably because of this collective cluelessness, another Pew/USA Today poll revealed that if nothing is done to resolve the sequester issue, about half of Americans will put the blame on Congressional Republicans and about 30% will blame the Obama Administration.  And so, the finger-pointing continues in yet another politican-created crisis.

How did we get ourselves into this mess?

The sequester resulted from the debt ceiling debacle in the summer of 2011.  Congress was debating whether to raise the debt ceiling and had a deadline of August 1st to come up with an agreement along with a deficit reduction plan.  A “supercommittee” of politicians from both parties worked together to figure out mutually beneficial tax increases and budget cuts. Not surprisingly, the committee failed to agree on final terms; what they did come up with was a plan to decide to plan to hopefully-maybe-fingers-crossed come up with some deficit reduction options sometime in the inter-galactic future. 

This mandate was part of the Budget Control Act of 2011, and also included the sequestration language; that is, failure to agree on deficit-reducing legislation would automatically trigger the sequester, which are automatic cuts that would affect every discretionary area of the federal budget.

When the Budget Control Act was drafted, no one thought Congress would be so irresponsible as to allow these budget cuts to be triggered.  But like the 2011 debt ceiling debacle that lasted over 6 months and culminated in deadline drama, and the recent fiscal cliff thriller that ended with “cliff”-hanging legislation on New Years Eve, it looks like Congress is going to ride this one out too.

How will the sequester affect government budgets & the economy?

The sequester calls for $1.2 trillion in deficit reducing budget cuts over ten years, about $85 billion in cuts for this year alone.  All areas of discretionary government spending will be affected, including social services, defense, education and housing.  The areas not affected by the sequester are funding Social Security, Medicare, Veterans Benefits, etc.

Economists and politicians fear that implementing the sequester will have negative effects on our economy. Some economists believe that these austerity measures would reduce economic growth by .5% –so that the US economy would grow at 1.5% annually instead of the 2% growth that was forecasted (already well below the healthy 3% minimum growth we’ve seen in past years).  The cuts are also expected to increase the unemployment rate, expected to hover around 7.9% by end of 2013.

Recently, Erskine Bowles, former Clinton White House Chief of Staff and more recently, a co-author of a famous deficit reduction proposal that was commissioned by Obama but that went nowhere (the Bowles-Simpson deficit reduction plan), was quoted regarding the spending cuts from the sequester:

“They are dumb and they are stupid, stupid, stupid. They are inane. There’s no business in the country that makes cuts across the board. You go in there and you try to cut those things that have the least adverse effect on productivity.

“Second, they’re cutting those areas where we actually need to invest: education, infrastructure, research.

“And third, they don’t make any cuts in those things that are growing faster than the economy. And that’s stupid, stupid, stupid.”

What Do The Cuts Possibly Mean For Us?

While the cuts have not yet been instituted, it’s possible that government-funded programs, agencies, infrastructure initiatives, etc. will be curbed in the next few months.  Here are some likely outcomes:

–  Government and military civilian worker furloughs are likely.

– National parks, monuments, camp sites, forests, etc. could be closed or reduce hours of operation and services.  Libraries may also reduce hours, services and close branches.

– Fewer teachers as well as cuts to education funding and grants; access to after-school and Head Start programs may be reduced or eliminated.

– Housing and mortgage assistance could be affected as cuts may affect HUD (that provides housing for lower-income Americans) and government-funded mortagage assistance programs.

– Less spending for research and programs for National Institutes of Health (NIH), Center for Disease Control (think West Nile, bird flu, etc), Food & Drug Administration (the return of cosmetic testing on kittens???  NO!), etc.

– Fewer government workers like the TSA (longer lines at airport security!!!), border control agents, immigration and drug enforcement agents, etc.  IRS agents may also see reduced hours or cuts.

– Budget-slashing at the Justice Department could lead to fewer investigations of wrong-doing and more abusive practices slipping through the cracks.  Budget cuts to other government-funded regulatory agencies like the SEC, FDIC, etc. could result in less oversight and possibly more abuses in the financial industry.

– The sequester could hurt Hurricane Sandy government-funded recovery efforts.

– Cuts to defense resulting in less training for deployment readiness, cuts to equipment and weapons maintenance, investment in weapons, etc.

– Major cuts to defense funding could result in decreased naval and Air Force operations.

The Sequester Squeeze

With a week left to go before the sequester kicks in, Congressional politicians have been busy doing what they do best: finger-pointing while on vacation.  The Republicans have been putting the responsibility on the Obama Administration, calling it the “Obama sequester” (even though the vast majority of Republicans voted for the Budget Control Act and the sequester in 2011.)  The Democrats have taken their turns at the blame-game, accusing the Republicans of dragging their feet and not caring whether the cuts kick  in.

Either way, it looks like we’re in for a bit of austerity starting next week.  If so, now might be a good time to check out a ton of library books you don’t plan on returning and fudging on your taxes.  There may not be anyone on the other side to check up on you.

New Year, New Deal

By now, everyone is pretty sick and tired of hearing about the fiscal cliff.  The fiscal cliff has been discussed, dissected, analyzed, blogged about, and counted down.  It seems every man, woman, toddler and goldfish knows about the fiscal cliff!

Fortunately, Congress finally got its act together and on New Years Day passed legislation that presumably kept the US from falling “off the cliff.”  In other words, if nothing had been done to avoid the fiscal cliff, then on January 1, 2013, taxes would have increased for most Americans, many middle class incentives would have expired and several harsh mandatory budget cuts would have begun to take effect, basically cutting many social services Americans rely on.

Now before we go organize a parade to honor our magnanimous government leaders, let’s get realz.  This fiscal cliff debate had been going on for years and was a major theme of this election.  Everyone knew when the deadline was and what was at stake.  By leaving any negotiations on a deal to the very end and then pushing legislation at the last second, our  politicians acted like a bunch of high schoolers who had been cutting class all semester long, only to be pulled aside by the school counselor and warned that failure to pull a C- on the final would result in failing 12th grade and staying back a year.  So for the last 2 weeks of school (or in the case of Congress, the last 2 days of the year!) the students pulled all-nighters and tried to prove how earnest and hard-working they were about passing chemistry.

So in my mind, there are no heroes in this deal.  Although I do applaud Speaker Boehner and Congressman Paul Ryan for standing up for the Bill during the session AND following up by putting their vote where their mouth is.

But now that we’re here, on the other side of the cliff and no one drowned, there’s a brand-spanking-new piece of legislation to wade through.  So let’s do this:

What’s in the Bill:

1. Extends low tax rates for most Americans

The Bill permanently extends the Bush tax cuts for most Americans.  In other words, the low tax rates that we’ve all enjoyed since President Bush introduced and Congress passed in 2001, will continue to be in force permanently.  Individuals who make less than $400,000 will be taxed at those rates (top ordinary income tax rate of 35%, 15% capital gains and dividend tax).

2. Raises taxes on the wealthy

For individuals who make $400,000 or more and families who make $450,000 or more, their taxes will go up.  The Bush tax rates were not extended to these individuals and families and so their top tax rate is 39.6%, capital gains and dividends taxed at 20%.  Please also note that beginning in 2013, there is an additional tax imposed on investment income thanks to the health care bill.  For families who make $250,000 or more, they will have to pay an additional 3.8% tax on capital gains, ordinary income, dividends, royalties and interest on amounts above the $250,000 threshold.  So for some unlucky (but wealthy) few–their ordinary income tax rate could be almost 44% and 23.8% tax on capital gains and dividend income.

3. Limits to deductions and personal exemptions are back

In addition, taxes get even more complicated for higher income Americans–even for those who make less than $400,000–because the legislation brings back 2 tax provisions that were frozen by the 2001 Bush legislation.  The personal exemption provision (PEP) reduces or eliminates the benefit of the personal exemption for high income earners, and the Pease provision, which limits and greatly reduces the ability of high earners to make certain deductions. These provisions will apply to individuals who make $250,000 or more and families who earn $300,000 or more a year.

4.  Sets estate tax and exemption

The bill also addresses and makes permanent the estate tax rate and estate tax exemption, another set of taxes that were in flux over the past 10-12 years because of their temporary status.  The estate tax is the amount of tax that a decedent’s (dead person) estate must pay on the value of the assets of the decedent, minus the estate exemption.  The new legislation  permanently set the estate tax (as well as the gift and generation skipping transfer taxes) at 40% and thereafter adjusted for inflation.  The estate exemption–or the amount of a decedent’s estate exempt from tax– remains at $5 million (for couples it is a cool $10 million).  This means that for wealthy families, they can continue to shelter up to $5 million of the estate from tax and then pay a 40% tax on the remainder.

5. Extends middle class incentives

The bill also extends several middle class tax credits and incentives for education and families.  It extends for 5 years the American Opportunity Tax Credit, the Child Tax Credit and the Earned Income Credit.

6. Extends the AMT patch

It also makes permanent the AMT patch (which is an alternative tax provisions intended to make sure that the wealthy pay their fair share in taxes but because it was never adjusted for inflation when it was created, it has slowly been creeping into the middle class).  The legislation allows for the AMT to be adjusted for inflation going forward.

7.  The legislation also extends unemployment benefits for workers who would have otherwise run out of benefits this year.

8.  Many pro-business, renewable energy and “green” tax credits are also extended.

9.  Payroll tax holiday

The Bill did NOT extend the payroll tax holiday.  This was instituted two years ago by the Tax Bill of 2010 and basically gave a tax break to every working American.  During normal tax years, every worker must pay 6.2% Social Security tax on  income.  The 2010 Tax Bill cut this tax by 2%, saving Americans about $10-20 in taxes per paycheck.  The recent legislation did not extend this tax holiday so this year every worker is back to paying the full 6.2% of tax on up to $113,000 of their income, or an additional $2274 in taxes annually.

What’s NOT in the Bill:

The Bill did not cover any significant budget cuts, entitlement reform, any meaningful deficit reform or corporate tax reform.  Many if not all of these issues will be addressed shortly, however, as Congress gets ready for its next major rumble when the government hits the debt ceiling in March.  It’s very likely that the Republicans will demand concessions, spending cuts and changes to entitlement during the coming debt ceiling debate.  The tension builds….

Twas The Night Before The Election-A Poem

Twas the night before the election, and all through the land,

The people were wondering,”Of the two guys running–which one can l stand?”

Between Romney and Obama, the contest seems tight

After their fiesty debates, it seems more like a fight!

The people were divided about who was the best

The guy who plays basketball or the guy in the vest?

Which was more honest, which was a crook?

Was the incumbent an American, like he wrote in his book?

The people blasted their opinions and tweeted their thoughts

Reading Op-eds From Fox News to Huff Post, connecting the dots.

Articles were forwarded from sister to colleague to friend

Arguing why Obama’s right for the economy in the end.

Others disagreed saying the country needs a change

Smaller government, bigger military and a lower tax range.

Still others were undecided and just wanted some fun

They mocked and rolled their eyes, mumbling “Can’t wait til this is done.”

Celebrities endorsed their favorite candidate

George Clooney! Lindsay Lohan? Ironic that they can decide fate!

Donald Trump…

What a chump!

And as the campaign progressed and things got pretty heated

Friends became enemies over whether the Prez should be unseated.

People argued their beliefs in the streets, hallways and on Facebook

Suddenly opposed to big oil or food stamps-or any tax haven nook.

Wall Street and Main Street were divided again

No to mention the 1%, the 47%, the rights of women.

The comics and late shows came up with their best satire

To poke holes in the platforms and influence who should retire.

From the imitations, sketches and sarcasm of SNL

To the “get out and vote video” by Will Farrell.

The message is clear and the message is right

The future of America will be decided tomorrow night!

Whether you think with your head and vote with your heart

Or the other way around, there’s no one way that’s smart.

Just get to your polling station and cast your vote

It’s a right and a privilege–and it’s free I might note!

But no matter who wins-Democrat, Republican (or Green)-one thing is for sure

Enough with the smack talk and promises, he must be a doer!

Cocktails On the Edge of the Fiscal Cliff

So we are fully in the midst of the presidential debates, and that means the elections are just around the corner.  If you caught the first debate on October 3, you may have noticed a more spirited Romney than usual and a more subdued Obama.  October 11 will feature the Vice Presidential candidates hashing out the issues.  Then two more presidential debates will follow, on October 16 and the 22nd.

But even as we root for our favorite candidate, it can sometimes be challenging to keep up with the lingo. One phrase in particular that has become popular not only with the candidates but with analysts, pundits, economists and the media is “the fiscal cliff,” used to describe a series of possible tax increases that may push the US towards another recession.  Let’s break it down.

What Is The Fiscal Cliff?

This is a phrase used to characterize the mixture of tax increases and spending cuts that are scheduled to occur after December 31, 2012.  In general, the fiscal cliff refers to 3 dilemmas: whether to keep tax rates low or allow current tax laws to expire;  whether Congress will/can do anything about the deep mandatory spending cuts to be instituted in 2013; and whether Congress will extend the payroll tax holiday and other tax incentives set to expire after December 31, 2012

I like this cliff more than the fiscal cliff.

Did you fall asleep yet?  If so, WAKE UP!  THIS IS IMPORTANT!!! 

The Bush Tax Cuts

Let’s go back in time to 2001: After the tech bubble burst and post-9/11, we were in the midst of a recession. To encourage consumer spending and boost the economy, President Bush initiated legislation that lowered tax rates on income and investments.  The legislation also affected estate planning, lowering the tax rates on estates, gift tax and generation skipping transfer taxes, and increasing the exemptions.  There were also some personal exemptions and deductions thrown in.

However, these laws were set to expire at the end of 2010 (meaning that on January 1, 2011,  tax rates would go back up to the 2001 rates).  In 2010, President Obama wanted to let the tax cuts expire (and thus increase taxes) only on the wealthy, but he was persuaded by his advisors to extend the tax cuts for everyone at least until the economy starts to recover.  Thus, the Tax Bill of 2010 was passed, extending the Bush tax cuts and keeping tax rates low–but only for two years

So here we are in October 2012 and this means we are coming to another tax deadline– and fast.   If no legislation is passed to extend the tax cuts for another year or to make them permanent–tax rates will go up on everyone on January 1, 2013, just 2 1/2 short months away.

Of course, controversy is brimming between the parties on whether to extend the tax cuts, make them permanent, let them expire on January 1 or only let them expire on the wealthy (as President Obama wants).  Romney wants to go a step further and lower tax rates across the board by 20%.

The candidates

[For those families lucky enough to make $250,000 a year, there will be additional taxes on investment income and salary income imposed in 2013, thanks to the Affordable Care Act (the health care act passed in 2009).  An additional tax of 3.8% will be added to your investment tax for any investment income over $250,000; and you’ll pay an additional 0.9% tax on your income over the $250,000 threshold.  Kinda makes you miss the good lo’ days working at Dairy Queen, huh?]


The Budget Control Act and The Sequester

The fiscal cliff also  refers to the automatic spending cuts resulting from the debt ceiling debacle that occurred last year.  Bear with me….

Back in the summer of 2011 when some of us were playing bocce ball on the beach, Congress was at work trying to deal with the debt ceiling.   Unlike the deficit, which is, in general, the amount of money the US government needs to borrow to make ends meet during its fiscal year, the debt is an accumulation of all US annual deficits.  It’s like racking up credit card debt and letting it accumulate year after year without paying it all off.

Reaching the debt ceiling is like reaching your limit on your credit card-to increase the limit you have to call your credit card company and prove your credit-worthiness for the company to extend more credit to you. When it comes to the debt ceiling–or the maximum level the debt can reach– Congress has to pass legislation to raise the ceiling so the government can continue borrowing.  Usually it’s the President’s job to go before Congress and explain why the ceiling must be lifted.

In past years, Congress raised the debt ceiling without controversy.  Last year, however, when President Obama went before Congress to ask for the ceiling to be raised, it was MAJOR DRAMA.  At that point, we were still in the midst of a sluggish recovery, the unemployment rate was still over 9%, the housing market was still a mess and the government had already passed several spending packages over the past few years that had caused the deficit to reach past $1 trillion, the highest its been since World War II.  It was a hard sell for President Obama to make to a very divided Congress to increase the debt limit.  On the other hand, failure to raise the ceiling could have resulted in serious consequences to our economy: services would have been drastically cut and the country’s credit rating would have been lowered (which it was anyways by S & P).

It’s a bird! It’s a plane! It’s the Supercommittee!

To deal with the issue, Congress put together a “Supercommittee” whose primary job was to deal with the growing deficit and find ways to raise revenue ( increase taxes) and identify areas to cut spending (curtail government spending).  They passed the Budget Control Act that summer, allowing the debt ceiling to be raised, and making general pronouncements about future measures to curb the deficit (to be decided after the bill was passed).  They also added a “sequester” in case both sides couldn’t agree to a series of spending cuts and tax increases.  The sequester is a package of automatic spending cuts that would be  enforced if the parties were unable to come to an agreement on how to curb the debt.

The cuts included in the sequester are pretty hard-core; lawmakers put them in there with the intention of scaring the committee into action and forcing them to make the tough decisions on reducing the deficit.  The sequester includes major cuts to the defense budget, along with cuts to social services, education and health care, among others.  When the Budget Control Act was passed, many in Washington were confident that the committee could come to an agreement, however grudgingly, that the rights cuts would be made, and that the sequester would not need to be enforced. 

But here we are today and GUESS WHAT? Neither party was able to come to an agreement on how to curb the budget, cut spending and raise revenue.  This means that come 2013, there may be some major changes made to our military and defense, education and other services we’ve come to expect.

Taxes, Your Holiday Is Over!

Even better than a tax holiday!


The third and last major component of the fiscal cliff are the additional tax extensions for the middle class expiring after 2012.  When the Tax Bill of 2010 was passed, it included a provision that reduced the Social Security taxes that we have to pay by 2%–AKA the tax holiday.  This pans out to keeping about $20 in your pocket on a weekly basis if you make $50,000 a year.  Congress decided to kick this into the Bill as a way to keep more money in the pockets of Americans and encouraging us to spend more.  Of course, $20 a week in savings is barely enough for a family of four to dine at Chez McDonald’s, but that was exactly the purpose. Many of us unknowingly used that $20 on gas, beer, diapers, etc.

The Tax Bill also extended tax savings that middle class families have enjoyed over the years, increasing tax savings for families with children, providing education subsidies, and eliminating the AMT on the middle class.  All of these provisions, along with the tax holiday and tax cuts on income and investments are set to expire after midnight on December 31, 2012.

So taken together, it looks like–if nothing is done to change this–we are headed for major tax increases in 2013. Some analysts claim that if all of these tax incentives expire and the tax rates go back up, the average family will see a tax increase of $1700.  Under normal circumstances, a tax increase is a big fat buzzkill.  But in a sluggish economy, with slow growth, a fluctuating market, a stubbornly high unemployment rate and rampant uncertainty, many economists agree that an increase in taxes could push the shaky economy off the cliff– and back into the trenches of a recession.

On the other hand, with a sky-high deficit (last year the government borrowed about $1.3 trillion), an expanding middle class and entitlement programs like Medicare and Social Security on an unsustainable path, many argue that tax hikes are inevitable and necessary.

Either way you slice it, we are on a tough economic path and the road to recovery will be painful.  Let’s keep these issues in mind as we watch the debates and head towards the elections.

A Quick & Dirty Synopsis of the Health Care Bill

The Supreme Court is expected to rule this week on whether to strike down part or all of the Health Care Bill  (Patient Protection and Affordable Health Care Act) –a huge piece of legislation that was passed and signed into law in March 2010.  The Bill had no support from Republicans and votes from only two Independents.

What’s in the Bill?

Here are some of the more significant provisions included in the Bill:

– Expands health insurance so that children up to age 26 may be covered by their parents’ health insurance

– Expands Medicaid coverage to more poor families

– Prohibits insurers from penalizing or dropping coverage for individuals with pre-existing health conditions

– Closes the Medicare ‘donut hole’ by providing rebates and discounts to seniors

– Creates an insurance exchange which would allow families and small businesses to compare insurance plans and costs within their states and also offers government subsidized options

– Requires that all employers with 50 or more full-time workers provide health insurance for all employees or face a penalty

– Requires that individuals not covered by Medicaid or an employer pay for their own health insurance or pay a penalty (“the Individual Mandate”).

The Price Tag

The cost for the bill came in at a little under $1 trillion–about $980 billion total.  To pay for the bill, Congress imposed the following tax cuts and revenue raisers:

– Almost 50% of the Bill would be paid for by imposing Medicare cutbacks and reducing outlays to doctors and hospitals

– The rest of the Bill will be funded by additional taxes.  For families who make $250,000 or more a year ($200,000 for single filers), the Bill created a new tax on “investable income”–an additional 3.8% tax.  This includes income from capital gains, real estate, rent, royalties, ordinary income distributions and distributions from variable annuities.  This tax would be imposed on investment income above the $250,000 threshold.  So, to the extent that a family earns more than $250,000 in income and investments, anything above that threshold would be subject to the additional 3.8% tax (on top of the usual capital gains/ordinary income/dividend income tax rates).

In addition, the Bill created another tax–a .9% increase in Medicare tax on wages above $250,000.  This would be added to the tax we already pay on Medicare above the threshold income limit.

– The Bill will also raise revenue by imposing an “excise tax” on high-end insurance plans for executives, known as Cadillac Plans.

The Controversy

The Bill was passed in the midst of much opposition and controversy while the Democrats were in control of both houses of Congress.  Almost immediately several attorney generals from various states filed claims to repeal the Bill.  The biggest claim was that the Individual Mandate–the portion of the Bill that requires and individual to purchase health insurance or pay a fine–is unconstitutional and must be repealed.

Supporters of the Bill –and the Individual Mandate–claim that when everyone carries health insurance, the costs are spread around and this could lower the overall costs of health insurance.  They claim that people should not be allowed to “opt out” of the system until they need health care because by that time, they will likely be very sick; this will increase costs to the people who do carry health coverage.  Opponents of the bill claim that the federal government should not have the right to force an individual to take on an additional expense, which should be a personal decision.

Before the Supreme Court heard the case, the law went before four different federal appeals courts, and came up with three different results.  Two of the courts voted to uphold the law, another court struck down the individual mandate, and the fourth court put off making its decision until penalties for failing to buy health insurance take effect in 2014.

Three possible outcomes

The law went before the Supreme Court this spring and the Court is expected to make its ruling by Thursday.  Here are the three possible scenarios:

– The Supreme Court could rule to uphold the law in its entirety.  This means that individuals, businesses, and insurers will continue to prepare for the various provisions to take effect.  Already, many insurers have changed their policies to comply with certain parts of the law, like expanding coverage to children up to age 26 and changing policies surrounding pre-existing conditions.  The tax changes will take effect in 2013 and the insurance exchanges would be up and running by 2014.

– The Supreme Court could rule to strike down the Individual Mandate provision.  This means that they would uphold the rest of the provisions within the Bill, including the additional taxes and expansion of Medicaid, but would prohibit the federal government from forcing individuals to purchase health insurance.  It’s likely under this scenario that the ruling would encourage states to create incentives for individuals to carry health insurance in order to address the issues that may result.

– The Supreme Court could rule to strike down the Health Care Bill in its entirety.   Recent polls show that while many Americans approve of various provisions within the Bill, the majority disapprove of the Bill itself–an indication that people don’t understand how the Bill will help them.  If the Court repeals the law, there will likely be a movement to replace it with another bill–but it will be a while.  Already many insurers have changed their policies and claim they would keep the consumer-friendly changes in place should the law be struck down.  But since it’s an election year–and judging from the divisive, slow-moving Congress– it’s unlikely that anything would be done to replace the bill until after the election.

My two cents: I think the Supreme Court will strike down the Individual Mandate–while many of the Court Justices seemed to be supportive of the measure in the beginning of the proceedings, the tone shifted a bit by the end.  The issue of allowing the federal government/Congress to control an industry–health care–in the name of commerce is troublesome, and could set a controversial precedence.  Striking that provision could motivate state legislators to create their own laws to manage and enforce a reasonable alternative to the Individual Mandate–to help reduce the costs of health care for all and create a more efficient and effective system.

Keeping Up With The Candidates

In case you’ve been hiking in the mountains of Mongolia, here’s some interesting news you might have missed.  This week, North Carolina voted against same-sex marriage.  President Obama responded by taking a stand in support of same-sex marriage while the GOP candidate, Romney, reiterated his belief that the state/federal government should only recognize a union between a man and a woman.

Already politicians on each side have come out to support their candidate and condemn the opponent.  The discussion over same-sex marriage will continue in the  months and years to come, and will most certainly take the spotlight during the presidential debates, but will this be a central issue that brings voters to the polls in anger or support of the candidates?  Will this issue, along with the other 3 distractions I mentioned in my previous post, be the main reason people come out to vote and drive the presidential election?  I don’t think so.  While the same-sex marriage debate- likely to be linked to the family values contest-as well as “the war on women” and the conflicts in Afghanistan and Iraq are all relevant topics that will get plenty of air-time, I think there are three crucial issues that will determine the votes in November.

1. The Economy

While there are plenty of indicators to prove that the economy is improving, overall growth is still sluggish.  The US economy grew 3% during the last quarter of 2011, which is the healthiest we’ve been in years- but that number is estimated to decrease during the first quarter of 2012.  Final results will be published on May 31, 2012.  The unemployment rate in April remained at 8.1% the lowest since before 2009.  However, this percentage does not count people who have been unemployed for 12 months but had not looked for work in the past 4 weeks; those who are unemployed but have stopped looking for work because they don’t believe there are any jobs for them; or people who are working part-time but want to work full-time.  Taking all unemployed people into account including the above would raise the real unemployment rate to over 17%.  In addition, of the people counted as unemployed, about 41% have been unemployed for 27 weeks or more.

While the market rallied during the first quarter of 2012, it has since become more erratic as fears of a European recession mounted and the crisis continued.  The market rally itself had some investors nervous, wondering how sustainable it would be, or whether this was a random fluke.   Many attribute a strong first quarter to an unusually warm winter which caused housing and spending to pick up momentarily.  However, consumer spending is down from February, US workers are tightening their belts once again and employers are failing to award the necessary pay increases to get consumers confident to start spending again.

As the summer months heat up, it remains to be seen whether the economy will do the same.  If, as many economists expect, the economy continues it’s sluggish growth, voters will keep in mind their employment status, bank account and investment portfolios when it’s time to vote.

As the election draws closer, it will be interesting to see whether, given French President Sarkozy’s defeat mainly because of his support of austerity measures–this rejection would extend to the US.  President Obama and the Democrats want big businesses to help bail out the economy, while the Republicans believe in pro-growth policies, like allowing overseas profits of US companies to be repatriated at lower tax rates to encourage reinvestment in the US.

2. Taxes

One of the major focuses during the 2008 Presidential election was what to do when the Bush tax cuts expire at the end of 2010.  President Bush/Congress had passed bills in 2001 and 2003 that lowered income, capital gains and dividend taxes, and estate tax as well as raised the estate tax exemption.  During Obama’s bid for president and throughout his tenure thus far, he has insisted that the Bush tax cuts should expire at the end of 2012 for American families who make $250,000 or more (the tax cuts were extended in 2010 and are set to expire at the end of this year).  Now, as a result of a slightly improving economy, high deficit concerns and maybe even the Occupy Wall Street movement, it’s likely that he won’t back down.

Warren Buffett

In addition, Warren Buffett raised eyebrows when he wrote a letter to Congress a few months ago, admonishing the wealthy 1% like him to take more responsibility and pay more in taxes since they were in a position to do so.  This concept became known as the “Buffett Rule” which has been included in various bills in Congress, requiring individuals who make $1 million or more to pay an extra %5- 30 tax (depending on which bill you’re reading.)

The Republicans have fought against any tax increase, arguing that this is bad for business and is an anti-growth measure for boosting the economy. The Democrats argue that with federal debt levels as high as they are (over $15 trillion currently) cutting spending is not enough, and taxes must go up on those who can afford it.  The revelation that, because of certain loopholes in the tax system, Romney has been able to pay tax rate below 20% for the past few years also underscored the imbalance in the tax system and the need to institute changes.

3. Iran and Syria

Move over Iraq and Afghanistan, there are new troublemakers in town.  After the Arab Spring of last year, the Middle East region has been grappling to steady itself as countries hold new elections, governments make changes and people try to adjust to new regimes.  Egypt, Yemen and Bahrain are still experiencing painful changes as a result of the turmoil of last year and it will likely be a while before things settle down.

The more immediate danger–especially where the US is concerned–is with Iran and Syria.  Both Obama and Romney will be asked their stance on Iran, and what they plan to do if Iran continues to develop nuclear weapons and refuse international oversight.  Especially with pressure from Israel, the candidates must appear forceful and strong in responding to any direct or indirect aggression from Iran against the US or Israel.

Similarly, as the turmoil and apparent civil war in Syria continues, the world will turn to the US to intervene.  The question will be whether to lead or participate in an alliance of several countries aiding the rebels as NATO did in Libya, or whether to directly intervene as the US and Allied forces did in Iraq.  The civil unrest in Syria is a delicate matter for the US; Syria has been tied to Iran so dealing with the Syrian conflict could ignite a fire with Iran as well.  On the other hand, after involving itself in Iraq as a “liberator,” capturing Saddam Hussein and trying to install democratic processes, it’s likely that the world will look at the lack of US involvement with Syria to be quite hypocritical and validate the theory that the conflict in Iraq was self-serving rather than to help liberate the Iraqi people.  This could add to pressures for the US to become more directly involved, possibly for the long-term.

Like bad trailers before the feature film, many issues lead to hot political discussions, but then either fade away, come to a resolution or are replaced by another pressing matter.  The real topics that will drive this election are not new or exciting; it’s just more fun to have a heated debate about the so-called ‘war on women’ or same-sex marriage.  Unfortunately with so many Americans still struggling to keep their head above water in this economy, and with so much continued uncertainty with taxes and danger brewing in the Middle East, we’ll be back to the same old stories come November.

Happy Hunger Games and 3 Election Year Distractions

Like many 15-year olds, I was excited to watch “The Hunger Games” when it came out a few weeks ago.  I had read all three books of the trilogy and had rooted for Katniss during her many ordeals in the Orwellian world of Panem.  Also like many, I was firmly on the side of Team Gale during the first book and then switched to Team Peeta by the end.  I stayed up until 3 am on a Tuesday night just watching the online trailers and reading up on the movie production. (Yes, in hindsight, that does seem a bit loser-y.)

So when I finally went to the theater I was ready to be dazzled by the ingenuity, the set, the costumes and the much-hyped performances.

But first things first.  Before I could watch the movie, I had to sit through 30 minutes of trailers for upcoming movies. Usually the trailers are a mix of comedy, horror, drama and a Judd Apatow film.  This time, however, I was shocked. The trailers featured highlights for “The Avengers,” “Mirror Mirror,” “Clash of the Titans,” and “Battleship.”  One after the other, images of death, horror, end-of-world themes, major US cities being wiped out, man vs. man, man vs. nature, man vs. robots– flashed before my eyes—and not one joke was cracked (although I think Robert Downey Jr. tried.)  After 30 minutes of violence and destruction, I was not so excited to watch a bunch of kids kill each other.

This got me thinking about how loud, flashy events can really distract us from the real focus.  In particular, since it’s an election year, we’ve already seen a lot of drama go down that in hindsight was unlikely to go far (ummm, “9-9-9”???), but definitely had its time on center stage.

And now that Romney has essentially emerged as the Republican nominee, and all of the GOP runners had their five minutes on top, a lot of noise has and will continue to be made about “the issues” that will determine this election.  Here’s a list of distractions—topics that, although relevant, will probably not be deciding factors for voters in November.  They may take over headlines for a moment, but will eventually fade as more urgent concerns take center-stage.

–       Women’s Issues (i.e. “The War on Women!!!”)

While Democrats have in the past accused the GOP of being anti-women, recent events have brought women’s issues to the forefront.  The Republican Senate struck down a bill that would require religious institutions to pay for contraception and other procedures for women.  In addition, Republicans have been accused of voting to cut funding that would provide low-income mothers and their children with food, housing and other necessities.  There have also been Republican-backed bills introduced that would redefine rape more narrowly.

The tables turned a few weeks ago when a Democratic strategist criticized Mrs. Romney saying she never worked a day in her life, thereby creating uproar across party lines about the role of stay-at-home moms.  As women have been turning out to vote in high numbers over the past few elections, both candidates will be sure to include women’s issues on their platforms and lend their support.  However, as the fog of the past few months lifts and the gloves come off, it’s unlikely that this will be a defining issue. Both parties will try to appease women in their own ways to gain their votes, but during this election year in particular, there will be bigger fish to fry.

–       Family Values

Over the past several election cycles, the Republicans have made family values and religion a big part of their platform.  They have maintained that God-fearing men and women built the US and wrote the Constitution, and that this attitude of humility and puritanical values should continue.  It’s no secret that the Evangelical Christians have held a major influence on the Republican Party and their ideals.   The Democrats have fought against this “traditional” definition of family values, trying to maintain what they deem to be a healthy separation between church and state.

As we get closer to the election, the Democrats will likely take the opportunity to closely examine Romney’s Mormon religion, his role in the Mormon Church and his past religious actions and words.  The Republicans will probably bring back the old “Is Obama a Muslim or an Arab?” conundrum, but this again will be noise and further distractions from the main themes of the election.  The family values/religion issue has always played a part in elections, and more so when you have a black man of African descent and a white man from a somewhat obscure offshoot of Christianity running for office.  But again, the main issues that will drive this election—to be discussed in a later post– will require the immediate attention and calculated approach of the candidates, and people will be listening closely to what they have to say.

–       Iraq and Afghanistan

While the “conflicts” in Iraq and Afghanistan and the War on Terror  were driving influences over the past few elections, the US has moved past its former position on physical involvement in the Middle East, and has taken a step back as a strategist and influencer in the region.  The troop withdrawals from both countries have already begun, and the US is currently involved in helping to support new democratic governments in both Iraq and Afghanistan.  While continued violence in those regions indicates that this may not be so easy, it’s clear that the military presence is being used more for strategic purposes and less as a force.

In addition, with the capture and killing of Osama Bin Laden last year, the War on Terror seems to have stepped back from the public consciousness.  Not that anyone believes that it’s over, but it doesn’t seem to carry the same resonance as a major platform theme that it had in past elections.  And, as deficit concerns began to mount over the past few years, many Americans began to question the reasoning of US involvement overseas during a time of financial crisis.  Lack of public support may also be why the government resisted becoming directly involved in the civil war in Libya and why they are considering non-military intervention with the resistance in Syria.

The US public will continue to support the government’s role in implementing defensive tactics to protect its citizens from terror attacks, and we will certainly hear from the candidates on these topics as well as on US intervention in the Middle East and other countries.  But this will not be a defining issue that voters take with them into the voting booth.

If you want to read about the issues that will define this year’s presidential election, check out my post tomorrow!

Can We Really Afford These Tax Breaks?

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This week, two events happened that have me scratching my head.  The first was the release of President Obama’s 2013 Budget, the last of his first term.  The second event is the soon-to-be passed bill extending the payroll tax cuts and jobless benefits.

In the President’s Budget, we have what most political analysts call the outline of Obama’s campaign for re-election.  And listen, I’m not hating on him for spending some time on the job campaigning.  Anyone who is pursuing the path to the White House is already making the rounds, so there’s no reason why Obama shouldn’t be making a couple campaign speeches himself. I guess what puzzles me about the Budget–and what screams “Hey guys, I’m running for office again!!”– is not what’s in it but what is missing.

 The President released a $3.8 trillion budget for 2013.  The White House says that, if enacted, this budget would cause the federal deficit to fall from $1.33 trillion in 2012 to $901 billion in 2013.  While a reduction in the deficit is the direction we want to be headed, we will still end up with a higher deficit than was promised when Obama released budgets in years past. Plus, given the contentiousness of the present Congress and the fact that it’s an election year, it’s unlikely that any significant part of this Budget will be enacted.

As in previous years, this budget is a mix of spending and revenue raisers. The President wants to spend about $350 billion on stimulus, mainly for education and extensions, and about $476 billion on transportation and infrastructure.  He plans to raise about $1.5 trillion in revenue mainly by eliminating the Bush tax cuts for families who make $250,000 or higher per year, as well as on mandatory spending cuts and cuts to Medicare.

For the most part, this Budget could be a cut-and-paste of prior years’ budgets with a few exceptions.  In general, the tax cuts for the rich are still there, including a brand new provision that would eliminate the AMT and replace it with the “Buffet Rule,” an imposition of a 30% tax on income for individuals who make $1 million or more.  Stimulus for infrastructure, education, families, and energy were also included.

What was not included in the Budget, and what made me yell at the TV commentator who was reporting on this, was any mention of entitlement reform. Back in the spring of last year when Congress was fist-fighting over whether or not to raise the debt ceiling, any mention of entitlement reform was immediately rebuffed with “Social Security is not part of the deficit!”  While that might be true, that’s actually not the point.  The fact is, the government spends a significant amount of outlays to paying entitlement obligations.  In 2010, the government spent about $3.5 trillion dollars, with about 60% of total outlays going to pay Social Security, Medicare and other mandatory benefits.  These are non-discretionary payments and cannot be cut without meaningful reform.  In fact, left unchecked and unchanged, it’s expected that by 2020, total outlays to pay interest on the debt and entitlement benefits could reach 90% of all government spending!

With recent arguments over the exploding deficit in Washington, one would think that our conscientious leaders would mobilize and come up with some guideline for reform that they can agree on.  Sure, there have been ideas batted around to fix Social Security.  Some politicans recommend raising the retirement age to 69 or even 70; increasing the tax on Social Security for all, for the wealthy only and/or on employers; increasing the amount of total income subject to Social Security tax; or even a means test that would determine who gets Social Security benefits-and how much- on a case-by-case basis.

I had hoped that in light of these recent conversations, we would hear something from the President about this looming crisis…instead, we heard crickets.  I understand this is an election year and Social Security reform is a sore spot for any politician seeking office, especially since the Baby Boomers make up a large chunk of our population (and are generally against any tinkering with their benefits), not to mention many of whom get out and vote.  But more of the same (ie. ignoring this problem) can be catastrophic, and as controversial as this topic is during an election year, I think I would have respected the Prez more if he had addressed it anyways.  He didn’t have to stick out his neck and make dramatic proclamations about necessary reforms, but maybe just a shoulder or a thumb or something.

Similarly, I’m not surprised but VERY troubled by the push for extending the payroll tax cut and jobless benefits that Congress passed yesterday, and the President is expected to sign.  As the tax cuts were part of the 2010 Tax Act and would have expired December 31, 2011, Congress did what they do best back in December–which is to  kick the can down the road and extend the cuts for two more months.  So if Congress had not acted before the end of February, our Social Security tax on wages would have increased from 4.2% where it has been temporarily to the standard  6.2% tax.

Since the beginning of the Recession, Congress has tried various ways to spur Americans to start spending and boost the economy. Back in 2008,  President Bush had checks for about $250 mailed to our homes in an effort to get us to start spending again.  What did we do with the cash?  Saved it or paid off debt.  President Obama also instituted tax cuts through several stimulus packages, intended to leave more money in the pockets of American workers, also with minimal effect on the economy.  And with this recent payroll tax cut, American families will have saved about $1000 in taxes in 2011.

But as of yet there is no real way to determine whether the latest stimulus measure actually helped to boost the economy.  Add to that, the issue that this new extension is not expected to be offset by any taxes or cuts to pay for it, and is estimated to add about $90 billion to the deficit.  In fact, at a time when Social Security and Medicare programs are the most vulnerable, the government is planning to send even more IOU’s to the Social Security Trust Fund, further jeopardizing Americans’ retirement future.  I don’t understand why more of our leaders are not troubled by this.

I’m telling you, after all the drama of the past few years, with Democrats  and Republicans going at it and trying to show the American people who cares more about the economy, this extension will leave a sour taste for everyone.  Both parties are responsible for allowing this law to be extended, and several members of both sides have admitted that this is not such a good idea.  If not for the fact that it’s an election year, it’s unlikely that this law would have been passed and the unfunded tax cuts extended.  At least not without a fight.

 I guess it’s up to us to do the right thing here.  Maybe we American families should do ourselves a favor–instead of taking the magical $1000 we supposedly saved in taxes from this bill, and buying new flatscreen TVs, Nikes and IPads, maybe we  put it towards our retirement. At the rate we’re headed, Social Security may not be around for many of us. Someone’s got to be the adult.

Politics As Usual

For the past few months, the country has been wrapped up in the never-ending Republican debates and the seesaw popularity of the GOP candidates.  And it’s been quite a ride so far!

A few months ago, Herman Cain was (remarkably) the front-runner, Rick Perry was sent to the back of the class, and Mitt Romney’s popularity was climbing, although his party was grumbling about it.

A few weeks later, Cain was out, Michelle Bachman was hanging on by her fingernail, and Rick Santorum was lurking behind Ron Paul.  Then, Bachman dropped out, John Huntsman embarked on a bus tour, Santorum made a point, Newt Gingrich yelled at the press, and Romney’s already sweaty grip started to slip. And this week, with Romney and Gingrich nose-to-nose, and the Florida primaries just days away, President Obama had the nerve to make the State of the Union Address!

GOP Overload

Oh, that’s right!  While we were busy watching the debates, and the parties getting ready for an election year, we forgot that someone still needs to run the country!  Not that the President’s address the other night proved that anyone is at the helm of this ship.  The morning after the speech, Obama took off on a multi-state road trip, presumably to begin/continue his own campaign for President.

Yet the fact remains that before this November’s election, there is much work to be done.  The US economy, while slightly improving, continues to struggle forward at a sluggish pace.  Unemployment, at 8.5%, is still alarmingly high and continues to be a major drag on the economy.  And the market, eerily quiet since the beginning of the year, is not expected to rally anytime soon.  Add to that the gloom and imminent recession in Europe, and many economists are expecting this year to be almost as challenging as 2011.

In addition to the pesky economic situation, Congress at some point needs to turn its attention to tax rates because, if nothing is done by the end of the year, the remaining provisions in the Tax Bill of 2010 will expire. This means that income, investment and estate and gift tax rates will go up on January 1, 2013.  The bad news is that, with the contentiousness we’ve seen in Congress over the past few years and the fact that Presidential campaigns are already underway, there’s not much optimism that Congress will address tax rates until at least after the election.

The President, in his speech on Tuesday, laid out a roadmap of action he sees necessary to get the economy back on track, but it was also considered by many to be a giant campaign speech.  Many commentators claimed that the President took on a “populist” tone in his speech, trying to show the great divide between classes in this country. Yet while the speech did cover some areas that were expected (income tax rates, education), the President was not as forceful and specific about certain policies he had vehemently supported in the past (i.e. elimination of Bush tax cuts for families who make $250,000 or more).

Here are the main points that the President covered in his address:

Corporate tax rates and tax breaks/incentives

President Obama wants to eliminate tax breaks for US companies that move their businesses overseas, and provide incentives for businesses that remain in or return to the US.  He wants every American company to pay a minimum tax even if their operations are located overseas, and to provide tax breaks for specific businesses like high-tech manufacturing.

Individual tax rates

In his speech, the President demonstrated his support of the “Buffett Rule.”   This provision was named after Warren Buffett, the CEO of Berkshire Hathaway, who recently wrote an Op-Ed stating that although he is a billionaire, his effective tax rate is lower than that of his secretary (who presumably makes a heck of a lot less than he does).  The President, who invited Buffett’s secretary to sit next to the First Lady during his speech on Tuesday, maintained that the Buffett Rule should be instituted, which would require people who make over $1 million per year to pay a minimum of 30% tax rate and limit certain deductions.

The creation of two new government agencies

The President outlined plans for a Trade Enforcement Unit that would investigate fraud, unfair trade practices and counterfeit actions in China; and a unit that would review agencies and individuals who promoted and approved the use of bad mortgages.

Mortgage relief

He wants to provide funding and alleviate hardship to mortgage holders who have kept up with payments but want to refinance their debt.

Education and Jobs

He discussed new incentives for education, job training programs and to limit government funding to universities that don’t work to keep tuition down.

Development of land for natural gas extraction (!!!!!)

Immigration reform and more….

While the President laid out his “wish list,” which was criticized as being too divisive and vague, he has yet to lay it out in his Budget for 2013, which was supposed to be submitted to Congress last week.  However, once we take a gander at the budget—in which the President will spell out his stance on tax increases, corporate tax rates, entitlements, defense, spending on government agencies and infrastructure—that’s when the gloves will really come off.