by Charles Wheelan, Ph.D.
Posted on Monday, December 14, 2009, 12:00AM
I do a fair amount of public radio. It's usually a staid, polite conversation among the guests, even when there are sharp disagreements.But a few weeks ago, I nearly leaped across the table and went after one of my fellow guests.
Fortunately I resisted the urge (barely) and the segment ended without a brawl. (The brawl would have been awkward since there are no commercial breaks, and it's not obvious what the host would have done.)Why did I contemplate this escalation? The program host was discussing the cap and trade legislation currently being considered by Congress, and my fellow panelist asserted emphatically that Congress should not do anything that would raise the cost of carbon emissions because "it would be bad for the economy."Those are not normally considered to be fighting words. The statement was relatively banal and, without much scrutiny, could easily pass as common sense. What made me so angry? The guest's opinion -- the notion that anything with short-term adverse economic effects must be bad public policy -- is the epitome of everything wrong with our current political discourse. It suggests that Congress should avoid doing anything with short-term costs, even when the long-term benefits are potentially huge. That's dangerously wrong. To explain why, let me make some comparisons to other aspects of life:Medicine: "I'm not going to let my daughter have chemotherapy to treat her leukemia. That will make her feel nauseous, and she'll lose her hair."Education: "We're not going to save for college. Then we won't be able to go out to dinner as often."Business: "We can't build a new plant to expand production. That would lower our profits this quarter."Health: "I'm not going to exercise. It makes me tired and sweaty."Military: "I'm not going to storm that beach. People will shoot at me."The Current Financial Crisis: "Why should I borrow less? Then I won't be able to afford this big house."As in the rest of life, everything worth doing in public policy -- all of the investments that have enabled us to build a great nation and all of the things we must do in the future -- involves some sacrifice in the present. This is now the case with carbon emissions.All reasonable evidence suggests that climate change poses serious, long-term harm. Any solution must involve raising the cost of carbon emissions, either through a carbon tax, or through cap and trade legislation (which does the same thing in a more roundabout, less transparent way). The economics are quite simple: If you want to discourage some activity, make it more expensive. We know that people use less energy when prices go up. Did you see what happened when gas went to $4 a gallon last year?Enough Sloppy ThinkingIf you're not persuaded by the fusillade of evidence on climate change, a carbon tax is still a good idea because it's a "better" tax than the alternatives, which discourage productive activities like working, saving, or investing. Taxing carbon discourages traffic congestion, it ameliorates more traditional air pollution, and it helps to wean us from nasty foreign oil producers. Even the notion that a carbon tax would be bad for the economy in the short run is debatable. I have argued repeatedly (including as part of a Congressional campaign) that any tax on carbon-based fuels or CO2 emissions should be at least partially offset by cuts in the income tax or the payroll tax. Or we could simply use the carbon tax revenues to give a lump-sum rebate to all American households. In that case, households whose carbon emissions were lower than average would come out ahead; their rebate would be larger than what they would pay as the result of the new carbon tax. Households with a larger-than-average carbon footprint -- meaning that they are imposing disproportionate harm on the rest of us -- would end up worse off; their carbon tax bill would be larger than their rebate. This does not strike me as one of the great social injustices of the 21st century.The cuts in the income or payroll tax (or the rebate to households) would help to offset the economic impact of higher energy costs. And with advance notice, households and businesses could minimize the impact of a carbon tax by investing in conservation and non-carbon-based energy sources. That's the kind of tax avoidance we like.Given the current deep recession, we could even introduce the income or payroll tax cuts now and then phase in the carbon tax in a year or two, after the economy has recovered. We would get a stimulus in the present while guaranteeing higher government revenues in the future (to begin paying down our staggering national debt). The phase-in would also give firms and families time to prepare for the rising cost of non-renewable, carbon-based fuels.There is a lot to discuss about a more sensible energy policy beyond "it would be bad for the economy." As someone who has spent a lifetime in public policy, I have a lot of tolerance for disagreement. That's what informed, thoughtful people do, and we're better for it.But I have virtually no tolerance for what I would describe as sloppy thinking.
http://finance.yahoo.com/expert/article/economist/208577
Jumat, 08 Januari 2010
Kamis, 07 Januari 2010
Smart Year-End Tax Moves
Laura SaundersMonday, November 9, 2009
This article is part of a series related to being Financially Fit
Time to Review Your Taxes — Before It's Too Late
Year-end tax planning always makes sense, but this year it's especially vital.
Convulsions in the markets and the economy have shifted the ground beneath many taxpayers, and next year may bring major tax changes as lawmakers confront the record deficit.
Bottom line: review your taxes before it's too late. "Too often, I can't do anything for people who come to me in February," says Douglas Stives, an accountant with Curchin Group in Red Bank, N.J.
Here are areas especially relevant now. (For more details, go to www.irs.gov.)
First-Time Home-Buyer Tax Credit
Congress has just extended and altered this benefit, making it more generous for many. The new rules took effect on Nov. 6. The provision is a true dollar-for-dollar tax credit of up to $8,000 for 10% of the cost of a home. The credit is also refundable, meaning that even if a buyer doesn't owe $8,000 of tax, she can claim the full benefit and receive a refund check.
The new law has more generous phase-outs. The credit now begins to disappear for single taxpayers with modified adjusted gross incomes of $125,000 and married couples with incomes of $225,000. It is available for purchases through July 1, 2010 if the buyer has a contract in place before May 1, 2010. Unlike the prior law, however, this credit is capped: those buying homes for more than $800,000 get no credit at all, as of Nov. 6.
The new law also authorizes a similar $6,500 credit for buyers who already own a home. It too is a refundable credit for 10% of the purchase price of a house costing no more than $800,000.To qualify the buyer has to have owned and lived in the same home for five of the eight years preceding the new home purchase, and the new home must become the buyer's principal residence.
There are interesting twists. Two or more unmarried people buying a house together may be able to allocate the credit as they wish, say to the lowest earner. Taxpayers who buy this year may also claim the credit on either a 2008 or 2009 return, and those who buy in 2010 can claim the credit either in 2009 or 2010. Some people claim the credit in one year rather than another to avoid phase-outs.
Unemployment Benefits
Alas, these are subject to income tax. But this year there is an exemption of $2,400 per individual. Still, many unemployed taxpayers receiving benefits may need to estimate and pay quarterly taxes or risk penalties when they can least afford them. IRS spokesman Eric Smith points out that all recipients can choose to have 10% of benefits withheld by the payer. "That should protect many," he says.
American Opportunity Credit
In the roster of fiendishly complex and highly limited education incentives, this one is more useful than most. It is a tax credit for as much as $2,500, generated by spending on tuition and other education expenses (books, possibly a computer) up to $4,000. Currently this credit is available for 2009 and 2010 to single taxpayers with less than $80,000 of modified adjusted gross income and married couples earning less than $160,000. Amounts paid in 2009 for the spring of 2010 are eligible for a 2009 credit.
New Car Purchases
Taxpayers who buy new car before Jan. 1, 2010, may deduct sales and excise taxes and other fees on as much as $49,500 of the purchase price. This provision has generous phase-outs: It disappears between $250,000 and $260,000 of modified adjust gross income for married couples and $125,000 and $135,000 for singles.
Retirement Savings
Have you just started a job? Remember that you can still put in an entire year's 401(k) contribution, which is $16,500 ($22,000 if you're over 50). "Some workers who begin a job in the last quarter arrange to have an entire paycheck or two go into the plan," says Melissa Labant, an attorney with the American Institute of CPAs.
Charitable Gifts
Unless Congress acts, this will also be the last year for taxpayers over 70 1/2 to make a charitable contribution directly from an IRA. This provision is useful: without it, the donation would have to be withdrawn from the IRA, claimed as income and then deducted as a donation. That, in turn, can trigger deduction limits or jack up Medicare premiums in the future.
Investments
Take losses! Even after the run-up following the lows of last March, many investors still have long-term capital losses on investments held longer than one year. Taxpayers may deduct up to $3,000 of these losses per year against ordinary income, with the excess carried forward for use in future years. The assets must be held in cash accounts, as opposed to IRAs and other tax-sheltered retirement plans.
Capital losses also may be matched dollar-for-dollar against long-term capital gains—so if you have $20,000 of long-term losses on some investments and $15,000 of gains on others, after the $3,000 deduction, you'd only have a net loss of $2,000 to carry forward. What's more, if you are bullish on an investment with gains and you sell it to soak up losses, you may buy the winner back right away. The tax code's "wash sale" rules only apply to losers, which can't be purchased for 30 days either before or after a sale. Note: The IRS also prohibits selling a loser from a regular account and then repurchasing it within an IRA inside of 30 days.
The current top capital-gains tax rate of 15% is the lowest in decades, and it is almost certain to rise at some point as the government scrambles to pay down the deficit. "If you have a buyer and a decent price, think about selling," suggests Mr. Stives of the Curchin Group.
Medical Expenses
This has long been one of the least useful deductions in the tax code, unless a taxpayer is seriously ill or in a nursing home, because the taxpayer must spend more than 7.5% of adjusted gross income to claim any deduction. But rising insurance costs and diminishing coverage plus this year's economic tumult may qualify more people for this deduction.
In general, taxpayers may deduct all un-reimbursed medical expenses recognized by the IRS. This category includes after-tax dollars spent on insurance premiums, Medicare Part B and D premiums, and co-payments for drugs and treatments. It also extends to costs that insurance almost never covers—such as weight-loss plans (if prescribed for a medical condition), lead abatement, bandages, wigs after chemotherapy, acupuncture, and medical travel (19 cents per mile for the first six months of 2009, 27 cents for the rest of the year). But it typically does not cover expenses for over-the-counter drugs such as aspirin or antihistamines, which some Flexible Spending Plans reimburse.
http://customsites.yahoo.com/financiallyfit/finance/article-108118-3140-0-smart-year-end-tax-moves?ywaad=ad0035
This article is part of a series related to being Financially Fit
Time to Review Your Taxes — Before It's Too Late
Year-end tax planning always makes sense, but this year it's especially vital.
Convulsions in the markets and the economy have shifted the ground beneath many taxpayers, and next year may bring major tax changes as lawmakers confront the record deficit.
Bottom line: review your taxes before it's too late. "Too often, I can't do anything for people who come to me in February," says Douglas Stives, an accountant with Curchin Group in Red Bank, N.J.
Here are areas especially relevant now. (For more details, go to www.irs.gov.)
First-Time Home-Buyer Tax Credit
Congress has just extended and altered this benefit, making it more generous for many. The new rules took effect on Nov. 6. The provision is a true dollar-for-dollar tax credit of up to $8,000 for 10% of the cost of a home. The credit is also refundable, meaning that even if a buyer doesn't owe $8,000 of tax, she can claim the full benefit and receive a refund check.
The new law has more generous phase-outs. The credit now begins to disappear for single taxpayers with modified adjusted gross incomes of $125,000 and married couples with incomes of $225,000. It is available for purchases through July 1, 2010 if the buyer has a contract in place before May 1, 2010. Unlike the prior law, however, this credit is capped: those buying homes for more than $800,000 get no credit at all, as of Nov. 6.
The new law also authorizes a similar $6,500 credit for buyers who already own a home. It too is a refundable credit for 10% of the purchase price of a house costing no more than $800,000.To qualify the buyer has to have owned and lived in the same home for five of the eight years preceding the new home purchase, and the new home must become the buyer's principal residence.
There are interesting twists. Two or more unmarried people buying a house together may be able to allocate the credit as they wish, say to the lowest earner. Taxpayers who buy this year may also claim the credit on either a 2008 or 2009 return, and those who buy in 2010 can claim the credit either in 2009 or 2010. Some people claim the credit in one year rather than another to avoid phase-outs.
Unemployment Benefits
Alas, these are subject to income tax. But this year there is an exemption of $2,400 per individual. Still, many unemployed taxpayers receiving benefits may need to estimate and pay quarterly taxes or risk penalties when they can least afford them. IRS spokesman Eric Smith points out that all recipients can choose to have 10% of benefits withheld by the payer. "That should protect many," he says.
American Opportunity Credit
In the roster of fiendishly complex and highly limited education incentives, this one is more useful than most. It is a tax credit for as much as $2,500, generated by spending on tuition and other education expenses (books, possibly a computer) up to $4,000. Currently this credit is available for 2009 and 2010 to single taxpayers with less than $80,000 of modified adjusted gross income and married couples earning less than $160,000. Amounts paid in 2009 for the spring of 2010 are eligible for a 2009 credit.
New Car Purchases
Taxpayers who buy new car before Jan. 1, 2010, may deduct sales and excise taxes and other fees on as much as $49,500 of the purchase price. This provision has generous phase-outs: It disappears between $250,000 and $260,000 of modified adjust gross income for married couples and $125,000 and $135,000 for singles.
Retirement Savings
Have you just started a job? Remember that you can still put in an entire year's 401(k) contribution, which is $16,500 ($22,000 if you're over 50). "Some workers who begin a job in the last quarter arrange to have an entire paycheck or two go into the plan," says Melissa Labant, an attorney with the American Institute of CPAs.
Charitable Gifts
Unless Congress acts, this will also be the last year for taxpayers over 70 1/2 to make a charitable contribution directly from an IRA. This provision is useful: without it, the donation would have to be withdrawn from the IRA, claimed as income and then deducted as a donation. That, in turn, can trigger deduction limits or jack up Medicare premiums in the future.
Investments
Take losses! Even after the run-up following the lows of last March, many investors still have long-term capital losses on investments held longer than one year. Taxpayers may deduct up to $3,000 of these losses per year against ordinary income, with the excess carried forward for use in future years. The assets must be held in cash accounts, as opposed to IRAs and other tax-sheltered retirement plans.
Capital losses also may be matched dollar-for-dollar against long-term capital gains—so if you have $20,000 of long-term losses on some investments and $15,000 of gains on others, after the $3,000 deduction, you'd only have a net loss of $2,000 to carry forward. What's more, if you are bullish on an investment with gains and you sell it to soak up losses, you may buy the winner back right away. The tax code's "wash sale" rules only apply to losers, which can't be purchased for 30 days either before or after a sale. Note: The IRS also prohibits selling a loser from a regular account and then repurchasing it within an IRA inside of 30 days.
The current top capital-gains tax rate of 15% is the lowest in decades, and it is almost certain to rise at some point as the government scrambles to pay down the deficit. "If you have a buyer and a decent price, think about selling," suggests Mr. Stives of the Curchin Group.
Medical Expenses
This has long been one of the least useful deductions in the tax code, unless a taxpayer is seriously ill or in a nursing home, because the taxpayer must spend more than 7.5% of adjusted gross income to claim any deduction. But rising insurance costs and diminishing coverage plus this year's economic tumult may qualify more people for this deduction.
In general, taxpayers may deduct all un-reimbursed medical expenses recognized by the IRS. This category includes after-tax dollars spent on insurance premiums, Medicare Part B and D premiums, and co-payments for drugs and treatments. It also extends to costs that insurance almost never covers—such as weight-loss plans (if prescribed for a medical condition), lead abatement, bandages, wigs after chemotherapy, acupuncture, and medical travel (19 cents per mile for the first six months of 2009, 27 cents for the rest of the year). But it typically does not cover expenses for over-the-counter drugs such as aspirin or antihistamines, which some Flexible Spending Plans reimburse.
http://customsites.yahoo.com/financiallyfit/finance/article-108118-3140-0-smart-year-end-tax-moves?ywaad=ad0035
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