National Debt Made Easy

I had a conversation with a friend last night who is way ahead of me in his tax planning. He has already reviewed the 2009 instructions and called me to let me know of some additional deductions and credits he thought my family might be eligible for this year. He was right on one and I'll have to do some reading to determine at least one other. I appreciated the call even if it did give me a vague sense of being "behind". I have to keep reminding myself that he has an earned doctorate in statistics and therefore might be more interested in numbers, financially based or not.

He called while I was reviewing our family budget (on GNUCash) from 2009. Just doing some basic things like cleaning up the backlog of entries from the end of the year when I took a couple of weeks off, insuring all the relevant entries are tagged for tax status and looking at cash flows to adjust some budget accounts for 2010. Standard stuff.

In the midst of all the year-in-review type activity though, its natural (necessary even) to determine if you're better or worse off, monetarily speaking, at the end of the year than at the start. The next natural progression of thought is for the new year, for your family and the country as a whole. As I followed that progression a number of thoughts came to mind on socialism, constitutionality and debt. Which reminded me of an article by the Heritage Foundation that I read before my vacation and intended to write about them. So yes, everything up to this point has been an introduction while getting to the real point.

No matter how much planning you do in providing for your family and keeping out of debt, the government apparently has other ideas.

The Heritage Foundation article on The Debt Limit discusses the raising of the national debt limit (slipped in for an initial vote on Christmas Eve, after the Heritage article was written). In a short one page article, they state what that really means for the country and individuals in clear terms. They then present four brief suggestions on how to take real action against the debt.

It's not the most in depth or comprehensive article on national debt, but one that makes it easy to have a real understanding on some key points. Which is exactly the goal. It can provide some new thinking and discussion points even for those who normally turn away from financial discussions, preferring the easier path of trusting career politicians.

So as you set your personal budget for 2010, just remember that you're not the only one spending the money you've earned or creating debt that you'll have to repay.

A Distinction Without A Difference

How can we hear so often that there will be no tax increases, but trillions of dollars in new entitlements and future obligations (aka debt) are being proposed? How will it all be paid for? Are politicians lying? Or is this simply a massively expensive word game, about to be played well into the future of every tax paying citizen of this country?

In the world of government taxation, there are multiple different categories of tax deductions, tax exemptions, tax preferences, tax benefits, tax credits and more. Quickly it can become overwhelming, even confusing for the average citizen. Enough so that distinctions can be made without actually honoring the original meaning.

Here is just a partial list of the ways that regular taxes can be stated as not increasing, but the total tax bill being paid does:

• Installing automatic increments based on Consumer Price Index (CPI)
  
• Failing to renew tax credits
  
• Repealing of tax breaks and incentives
  
• Allowing of automatic tax increases to occur
  
• Adjusting tax brackets (bracket creep)
  
• Calling the increase temporary
  
• Indexing to something other than inflation (indexing higher)
  
• Enacting surtaxes with special conditions
  
• Increasing the sources (of income) subject to taxation
  
• Decreasing Alternative Minimum Tax (AMT) exemptions (overrides regular tax rates and breaks)
  
• Doubling taxation of businesses and individuals (via dividends and interest)
  
• ...
  

So in politics it may be considered truthful to say one thing and then subvert that statement with indirect, conflicting actions. Possibly the politicians themselves have been duped by their subculture to believe in a different form of honesty (if it can be called that). Maybe what isn't said is just as, if not more important.

Determining what the words in a political speech mean can be difficult. Citizens must keep themselves informed and diligent concerning issues affecting the nation. If we don't, we risk electing politicians who are being honest in a dishonest way.

Now how our European allies will reconcile the US dropping support for the missile defense shield after pledging to support it "As long as the threat from Iran persists" given recent knowledge that Iran is "...on the way to developing a missile system able to carry an atomic warhead..." might require a different analysis.

Regardless, words have meaning. When they're coming from people who have the power to affect entire nations for generations to come, people everywhere need to listen and remember them.

Retroactive Tax Increases

Those not concerned about paying income tax or whose sole interest is in getting an income tax "refund" (loaning the government part of their earnings interest free for a year) probably should skip this post. Others, particularly those that live in North Carolina, may be interested to learn that the state just approved a retroactive income tax increase last month. Yes, retroactive.

It is identified as a "surtax". The relevant section of Senate Bill 202 is 27A.1(a) and reads as follows (emphasis added):

PART XXVIIA. TAX CHANGES
CORPORATE AND INDIVIDUAL INCOME TAX SURTAX
SECTION 27A.1.(a) Part 1 of Article 4 of Chapter 105 of the General Statutes is amended by adding a new section to read:
"§ 105-130.3B. Income tax surtax.
(a) Surtax. – An income tax surtax is imposed on a taxpayer equal to three percent (3%) of the tax payable by the taxpayer under G.S. 105-130.3 for the taxable year. This tax is in addition to the tax imposed by G.S. 105-130.3 and is due at the time prescribed in
G.S. 105-130.17 for filing a corporate income tax return.
(b) Sunset. – This section expires for taxable years

Note that this bill was signed into law on August 7, 2009 (scroll to the bottom of the list of actions). Retroactive over seven prior months of tax planning, now invalidated. Governor Perdue was sworn into office on January 10, 2009 (scroll to the bottom of the media releases). Retroactive nine days earlier than even the Governor's taking of office.

The surtax affects corporations and what the press would term "high income" individuals. Regardless of if this particular action has immediate personal application or not, every taxpayer should consider what principle is being demonstrated by issuing retroactive tax increases. Here are just two.

1. Is tax planning is useless? Any scheduled planning, giving or investing based on the tax rates at the start of the year are certainly now reduced in effectiveness. Businesses planning investments in the state will surely take this into consideration in the future.


2. What guidelines exist, or should exist, regarding enactment of retroactive laws? The paying of taxes has a clean yearly boundary due to the payment cycle. If the discussion was over issuance of licenses or permits what would the boundaries be?

FWIW - this is not an indictment of Governor Perdue or any political party. It is however of politicians and politics in general. It is an amazing display of the politics of power and money, this time at the state level. Be careful of the change you vote for. It can change the future - and the past.

Virtual Vacations

Time spent on the computer for many people is a form of escapism.  Similar to being immersed in a good novel, the experience can expand one's horizons.  The analogy isn't perfect and both mediums certainly have their strengths.  However, at the risk of sounding too much like a Google fan, Google Streetview can present some amazing sights.  Amazing enough to provide some very interesting escapes.

With only a little Googling, some popular tourist sites can be found like: Big Ben, the Eiffel tower, the Roman Colosseum, even Yellowstone National Park.   Some, like Mount Rushmore are not nearly as detailed.  As you consider your own to search for, think of how close the camera car can get, as well as any travel restrictions in the area or country chosen.

Google has had its share of privacy issues with capturing unintended street views, however any image taken is public by its very nature, if not timing.  Legalities and liberties aside, its a great diversion.

I don't know how much time was spent following these links, or creating some of your own, but I hope you enjoyed this virtual vacation.  It definitely saves money on travel!

Free Information

Not just the random posts in this blog, but actual useful information - business information. More specifically business phone numbers. I might be late to discover this, but for anyone else who might have missed it, Google has a 411 service that's free to use and even to auto-connect.

The service is described at http://www.google.com/goog411/ and can be used by calling 1-800-GOOG-411 (1-800-466-4411). It might just be because I still have a restrictive cell phone plan, but free 411 is worth $1.50 a call to me if I'm out somewhere and need to call a business for directions.

For the Google world domination theorists, one final thought - it was interesting when I programmed the 411 number into my cell phone that T9 already knew "Google". Ah...I'll use it anyway, its free.