NATIONAL: The Fiscal Cliff - Gee, What Fun We Are Having!

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UPDATE - 1/4/2013: The Fiscal Cliff Fix of 2013 has capped charitable deductions for high income earners, likely resulting in reduced charitable deductions. Those who say your giving should be from the heart and should not depend on getting something back, such as a tax deduction. Those people are economic imbeciles for not understanding whole this reduces charitable giving.

I'll try to explain this simple math to them: Many people decide to give a certain amount of money to a charity, let's say $1,000 a year OUT OF THEIR POCKET. For an affluent individual in the state of California paying a combined 50% (approximate rate) in state and federal income tax, they would contribute to their favorite local charity, the Homeless Shelter, by giving them $2,000. Since they are in the 50% tax bracket, the donation would save them $1,000, so $2,000 (charitable donation) - $1,000 (taxes saved) = $1,000 in OUT OF POCKET cost to them - thus, their annual $1,000 donation. When the Fiscal Cliff solution comes into play, since they no longer can deduct the donation due to deduction limitations on high earners, they would NO LONGER contribute $2,000 to the charity, but half as much, at $1,000. Thus the nonprofit Homeless Shelter would be shorted $1,000, which they would have to make up somewhere.

Where is that somewhere? Reduce costs? Yeah, right - they already operate on a shoestring budget greatly assisted by charitable giving and volunteers. So they turn to the government to make up that difference, thus growing our government ever-larger. This may or not have been a desired side effect of the Fiscal Cliff legislation, but it certainly favors the thinking of the left.

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UPDATE - 1/2/2013: My prediction that we'd go off the fiscal cliff died yesterday, but though my prediction was TECHNICALLY correct, we bounced back up from the cliff rather quickly (1 day!). What about the deal itself? Predictably, the Republicans abandoned their principles, held their noses, did the right thing, and voted for the Senates bill that backs the nation back from the cliff, but not by much!

It really frustrates me that the media (Wall Street Journal, San Luis Obispo Tribune), in general, does not report what is ACTUALLY IN THE BILL, so that we can decide for ourselves what to think of it. The best I could do was this little blip in the Wall Street Journal, if I can actually find it, but I can't find it online, but here's the WSJ Article on Avoiding the Fiscal Cliff 1/2/2012.

What was in the bill that passed? Well, nobody puts out a list of what's in it, and what was left out that they discussed leaving in, but here's my best effort in a short time at what was in the bill that passed:

• Income tax: top rate for high earners went from 35% ($388,350 per year for joint filers AND single filers) to 39.6% (the "Clinton Era" tax rate, $450,000 for joint filers and $400,000 for single filers)
• Capital gains rate: top rate for high earners went from 15% ($70,700 per year for joint filers and $33,350 for single filers) to 23.8% ($450,000 for joint filers and $400,000 for single filers) - includes 3.8% Obamacare Surtax
• Dividend tax rate: top rate for high earners went from 15% ($70,700 per year for joint filers and $33,350 for single filers) to 23.8% ($450,000 for joint filers and $400,000 for single filers) - includes 3.8% Obamacare Surtax
• Personal exemptions phaseout and Pease limit on itemized deductions: apparently went from no income limit to $300,000 for joint filers and $250,000 for single filers
• Social Security / FICA tax (employee portion): went back up for EVERYONE from 4.2% to 6.2% with the earnings application ceiling increasing from $110,100 to $113,700.
• ObamaCare payroll tax surcharge went from nonexistent to 0.9% ($250,000 for joint filers and $200,000 for single filers)
• Estate Taxes: went from 35% on estates values above $5,000,000 to 40%  on estates values above $5,000,000 
• Medical device tax: went from nonexistent to 2.3% for all medical devices manufactured in our country
• Alternative Minimum Tax: permanently adjusted for inflation 
• Permanent extension of expanded adoption credit
• Permanent extenion of expanded dependent care credit
• 2 year extension of $250 deduction for teachers spending their own money on school supplies
• 2 year extension on sales tax deduction in lieu of state income tax deduction
• 2 year extension of charitable donation of IRA assets up to $100,000 for people 70 1/2 years and older
• Avoided the Dairy Cliff (you'll have to look this one up yourself - suffice it to say that milk prices will NOT double, as they would if this was NOT averted)
• I believe that unemployment benefits were extended, but as MAJOR as that is, I can't find it in the articles I am reading.

Most of these changes are awful, and to the extent that they increase revenue, all that and more is spent in the same bill by our Federal government. What we get is increased taxes and EVEN LARGER increased spending. This deal is still a budget bloater! Now get back to work, people!

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UPDATE - 12/30/2012: My prediction that we would head over the Fiscal Cliff on 12/31/2012 appears to be coming true, but I'm not gloating - I'm crying. The stock market is just now recognizing that reality, and has begun to tank. However, those with cash on their hands should consider investing in the U. S. stock market if it continues to go down.

The Fiscal Cliff negotiations between the Democrats and Republicans are just too messy, distracting, and out-of-touch with reality to report here, or frankly to even follow! If you want to punish yourself, however, go ahead and go on-line and read all about, but I'm NOT going to put a link in here for you to make it easy - out of compassion for you. Suffice it to say that I believe that our elected representatives as a group are not representing us well, and "we the people" will pay the price. As always, I hope I'm wrong, and that our Congress does the right thing and comes up with a good compromise to deal with the Cliff. Sigh.

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UPDATE - 10/12/2012:  Just like I predicted that Obama would win re-election months before he did, I also predicted (right after the election) that we would go off the "so-called" Fiscal Cliff. I should have put it in my blog then, but I didn't - but now I have! After we go off the cliff in 2013, there will be a lame and poorly thought out "compromise" to bring us back from the bottom of the cliff (remember, we just went over it - we must have landed somewhere below it) that primarily or exclusively favors increasing taxes, closing loopholes, and generally tightening the stranglehold that our current system has on the producers, entrepreneur's and innovators. This result will be what Obama has called a "balanced approach" to "solving" the Fiscal Cliff - that is, balanced heavily in his favor.

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UPDATE - 10/12/2012: I'm tired of this BS from Obama about that he won the election, and therefore gets to spike the football for his team. Last time I checked, he was president of all of us in this great nation, and not just his side. He continues to campaign for a "balanced" solution, but only proposes terms that Emperor Hirohito of Japan can relate to. Here's how I keep "score" of who won the election:

- Pres/VP: Democrats, 

- Senate: Democrats, 

- "People's House": Republicans, 

- State Governor's: Republicans (29 Republicans, 20 Democrats, 1 Independent). 

Looks like a pretty even scorecard to me. The Electoral College was a landslide for Obama - no doubt about that. However, many look to the popular vote for the degree of a mandate. As far as the final popular vote tally, google does not give me a clear indication of that count, so here is an article (click to read) that seems fond of discussing the degree to which this election between Obama and Romney was close. From googling around, it seems the final total of the popular vote was somewhere around 51% to 48% - around 3% (why is it so hard to get the final tally, or am I just looking in the wrong place?).

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ORIGINAL ARTICLE: 10/11/2012: You knew I would have something to say something about this eventually - right? I like the statistics below put out today in a recent poll taken by McClatchy-Marist that appeared in the 12/11/2012 edition of the San Luis Obispo Tribune (note to Tribune: when was poll taken? degree of accuracy? who was polled, etc. - come on guys - lets ground our reality a bit!). Anyways, though I'm not happy with how the questions are framed (because they skew the answers to the questions), they are still interesting results - you should read them for a snapshot of how the American public is feeling about this stuff. Note that I have substituted "we" for the "government", as we really are the government - we certainly elected them.

Are you concerned about the Fiscal Cliff? Yes 78%, No 22%

Should we compromise or stand on principle? Compromise 74%, Stand on Principle 21%

Should we raise taxes on the rich (the top 2%) and keep the Bush/Obama tax cuts for everyone else? Yes 57%, No 40% (note that it is not clear what the alternative to this question would be - assumedly letting them rise for everyone? Who knows? The article did not say, making this a POOR poll question, IMO).

Splitting the above vote by Democrat and Republican, here's what we get (same question):

Should the we raise taxes on the rich (top 2%) and keep the tax cuts for everyone else?

Democrats: Yes 75%, No 20%

Republicans: Yes 30%, No 68%

Do you oppose letting the current income tax rates expire? Yes 74%, No 20%

Do you oppose letting the current 2% payroll tax cut expire? Yes 50%, No 33%

Do you oppose letting the Medicare eligibility age increase from 65 to 67 years old? Yes 59%, No 40%

Do you oppose cutting overall spending for Medicare? Yes 74%, No 23%

Note that this has already happened and is thus an unfair and poorly advised question. Read about the Medicare cuts of $716,000,000,000 already made and baked into Obamacare. Ironically, though the previously referenced article makes a case for the fact that the $716,000,000,000 are not cuts, it becomes clear from reading the article that they are, indeed cuts - by most reasonable definitions, anyways. Example from article:

"One big chunk of money will be saved by reducing unjustifiably high subsidies to private Medicare Advantage plans that enroll many beneficiaries at a higher average cost than traditional Medicare."

Aside from inflammatory use of the opinionated term "unjustifiably", the statement illustrates that Medicare Advantage subsidies (note: ALL medicare is subsidized) will be reduced - this is what we in the real world call a cut.

In conclusion, this question is a fallacy, as Medicare has already been cut. The correct would have been to ask:

Do you oppose cutting overall spending for Medicare in addition to the $716,000,000,000 that has already been cut?

Do you oppose cutting Medicaid (medical care for the poor)? Yes 70%, No 26%

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CALIFORNIA: The Next Big Joke on Us is SavingsPlus

We just got our "SavingsPlus" password and user ID in the mail yesterday 12/24/2012, and what a joke this thing is. Sue wrote a recent blurb on the topic, which is reproduced below. Try not to laugh at the folly of our California lawmakers and what they are trying to foist upon us as "real solutions to real problems". It won't even pass legal muster. Here is the link to California's own website on SavingsPlus. You can read more from this Press Release dated 9/28/2012 on the SavingsPlus program. Read on:

California State Senate Bill 1234 (aka "California Secure Choice Retirement Savings Trust"): California took a tentative (and likely pointless) step toward requiring private employers to withhold 3% of their employees’ wages to give over to a State-run pension plan. The State would collect the money, invest it and eventually pay out retirement sums to the “contributing” employees.

However, the law will not go into effect unless three major hurdles are overcome, which will be very unlikely. The hurdles are:

(1) A State-created board must conduct a market analysis and conclude that the retirement system would be self-sustaining;

(2) the IRS must rule that the contributions can be made on a pre-tax basis; and

(3) the U.S. Department of Labor must rule that the law is not preempted by a federal benefits law known as ERISA.

Given the grossly optimistic assumptions that the State has used in the past to contend that existing public employee pension funds were somehow fully funded, it is likely that the State-created board will pass the 1st hurdle. However, the 3rd hurdle, ERISA preemption, is unlikely to be surmountable. ERISA law clearly provides that no State shall make any law imposing or regulating employee benefits, including pension plans.

The courts have universally applied this rule in a very broad manner, voiding laws similar to SB 1234. The chances of the Department of Labor saying that SB 1234 is not barred by ERISA are slim, at best. But even if all of these hurdles are cleared, additional legislation will be required to actually implement the program.

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WORLD: Happy Holidays from the Waags!

This is a photo of our dog Shayna sitting in front of the living room window. This is particularly meaningful because our strange dog of 17 years, Shayna, probably will see 2013 as her last year on this earth. She had a good run for such an odd dog, and we love her and will miss her.

About the photograph: Even though we don't have any snow in San Luis Obispo, it appears that there is a pine tree and snow outside - a fortuitous deception for this photographer. Also, I photoshopped in the lights around the frame of the window by cloning a light from one on the Christmas tree. Not a deception - just advantageous art. Merry Christmas!

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STATE: ObamaCare and the California Legislative Supermajority in 2013

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UPDATE 12/25/2012: To those who are still under the illusion that ObamaCare will some you some money, think again. We use a program called TASC (AgriPlan, BizPlan) to administer our Section 105 Plan for our business. After the advent of ObamaCare, TASC immediately raised their annual fee to administer our plan from $220 per year to the current rate of $395 per year. The reason for DOUBLING our plan administration fee was due to additional complexity added by ObamaCare. The complex and expensive new requirements that primarily kick in in 2014 (including the new Health Insurance Exchanges) will mark the beginning of the end for private medical insurance in this country. We'll just have to wait and see.

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ORIGINAL ARTICLE POSTED 12/25/2012
Below are 2 articles that I wrote for a recent publication. They set the stage for employers to get ready for 2013 - it'll take your breath away! I predicted we are going to go off the fiscal cliff, and it looks like that is going to happen. Anyways, here are the 2 articles.

Article 1. ObamaCare
This publication gives extensive coverage to the ever-increasing demands placed upon employers by the health mandate commonly referred to as “ObamaCare”. Thanks to our benefits attorney for covering “where we have been and where we are going” for employers that are still trying to provide affordable health care coverage to their employees. We normally do not devote this much space to coverage of a single subject, but anything that dramatically changes one-sixth of our entire U. S. economy cannot be ignored or glossed over. [Note that the article that is being referred above to is NOT posted in this blog, as it is WAY too long at 3,103 words!]

Not being health care benefit experts, we are just as anxious as our clients and friends when it comes to understanding what ObamaCare may be foisting upon us. The legislation underlying the mandates is complex, technical, and often obscure. This newsletter, unfortunately, is only able to serve as a starting point for helping you and your business to sort it out.

Democrat Supermajority in 2013
A less talked-about change of dynamics for 2013 has to do with our new Democrat supermajority in the California state Legislature. Democrats have unrestricted, unchecked power in the executive and the legislative branch, and all the responsibility (and blame) that goes with it.

Since it takes two-thirds of the California Legislature to enact a variety of important legislation, the Republicans have for years been able to easily frustrate Democrat ambitions. With Democrat victories in the November 2012 election, there is now an unfettered shift in power.

Many expect a full-out assault on the taxpayers of California, while others hope that restraint is the order of the day. Either way, Democrats will own 100% of whatever direction is taken.

Democrat leaders are facing years of pent-up desire among their grassroots supporters to roll back spending cuts, rebuild the state’s water system, amend the state’s tax code, revamp California’s governance system and more. We’ll just have to wait and see what happens. It should be an interesting year for California businesses.

Article 2. Small Employers Cope with the New Health Law: Cost and Compliance Issues with ObamaCare
With many small employers still recovering from the financial collapse of 2008, they now face certain increased cost impacts from ObamaCare on their fiscal bottom lines.

Compliance Issues Still Not Well-Defined: If small employers are uncertain about the impact to their business of the new health care reform laws, they are not alone. The simple fact is that, though the “Affordable Care Act” (“ACA”) was passed into law in March of 2010, the federal government is still trying to define the requirements for employers.

Exceeding the 50 Employee Headcount: One of the magic numbers related to ObamaCare is fifty - that’s right, as in, do I have more or less than 50 employees? As in: if I stay under 50 employees, then I might escape the requirement starting in 2014 to offer workers health insurance or pay a penalty for not providing it.

Legal Ways to Stay Under the 50 Employee Number: Many small employers are looking for possible ways to legally stay under the 50 employee threshold. The easiest and most obvious way is to simply not grow their business over that 50-employee count. Unfortunately, that may mean giving up on revenue growth targets and the additional jobs that would go with it.

Other small employers have been looking at splitting the company up into multiple pieces, each with fewer than 50 employees. However, the Internal Revenue Service already thought of that — workers who are employed in a common group of businesses must be treated as being employed by a single owner, so this will not work unless you truly divest parts of your business.

Dealing with Increased Health Costs: Even before taking into account the added expenses of the new health care law, family health insurance premiums have roughly doubled since 2002. Avoiding the associated costs and regulatory burdens of ObamaCare are not options for many larger businesses. Already operating on thin margins, many business owners feel they have to find a way to deal with the increased health costs or close down all or part of their operations.

Other business owners are exploring raising their prices if possible, or moving part of their operation overseas and out of the reach of ObamaCare, just like the “big boys” already do.

While many struggle to provide health insurance to their employees by paying the most they can afford to pay, owners worry that they will not be able to meet the “minimum essential” mandate, which requires employers to pay 60% of the total cost of the plans benefits. So the impact of ObamaCare may be that some employers who offer insurance will stop doing so.

Towards a Single-Payer Solution: Many observers also believe that the expected drop off in employer-sponsored health coverage due to onerous costs and regulatory burdens may pave the way for a single-payer health care system in the future. Note that I believe that this is exactly the result of the complex, incomprehensible and unaffordable ObamaCare. ACA will create much chaos and mayhem first before citizens finally scream for a single-payer system. The calm, rational logical for single-payer will be: ANYTHING is better than this cr*p health care plan we have now! I am predicting that it would take about 15 to 20 years of ObamaCare chaos before a change to single-payer is fully engaged.

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WORLD: Hey, Today is 12/12/12!!!!

WORLD: Hey, Today is 12/12/12!!!! Okay, I thought it was a cool date. Apparently, I'll do anything to avoid working! For that, I owe you a cool photo stream (below). This set of three is from a recent trip to the Mojave Road (click on Photo to enlarge):

This is a well-known stop along the Mojave Road 4x4 adventure trail - the old bus parked in an area that was farmed (!) during the Great Depression in the late 1930's when it rained hard out there for a few years! That's Sue in the window.

In general, there is a certain fascination when an old bus is found in the middle of nowhere - apparently. That concept was made famous by Christopher McCandless' death in 1992 and subsequent book by John Krakauer "The Call of the Wild" - click here for info on the book (you should read it, and though it is depressing, it does make the point that you shouldn't be wandering the wilderness alone when you have no clue to what you are doing; RIP C. McC.). Fascinating fact: Chris McCandless was born in El Segundo, Calif., where I went to High School and my brother and Mom still live.

The bus sprouts awesome spraypaint color from the front:

Well-known saying on the hood of the bus:

"Jesus Loves You - Everyone Else Thinks your (sic) An Asshole!"

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NATIONAL: 'Tis the Season!

Just got in an email from John U - thanks for the laugh, buddy. Have a great Christmas - hope all is well. Haven't seen or talked to you in a while - maybe 2013? Click image to enlarge.

Another funny one, sent to me by R1:
An old man was asked, "At your ripe age, what do you prefer to get - Parkinson's or Alzheimer's?"
The wise one answered, "Definitely Parkinson's.  Better to spill half an ounce of Jack Daniels, than to forget where you keep the bottle!"

Below: one of our elderly friends, barely escaped this tragic wreck, but D*MN if he didn't remember where he kept the jack! Some would say that he was lucky to walk away, but I say he was lucky to get Parkinson's instead of Alzheimer's, since he managed to find the bottle of jack hidden in the glovebox while waiting for the Jaws of Life to pry him out of the wreckage! (Note: I normally do NOT put photos of anyone who is recognizable, but in this case, it really could be any of us with a bottle of Jack plastered to our face!). Click Photo to Enlarge.

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NATIONAL: Soak the Rich, No Matter What!

No, I am not in the 1% - not even close. Perhaps within the Top 20%, but I'd have to look it up and I'm just too busy (or too lazy) to do it - I'm not sure which. I'm on an overnight coffee buzz, as I just stayed up all night as a volunteer supervisor at the Homeless Shelter Overflow hosted by the Carmel Lutheran Church in SLO. So I may be using poor, sleep-deprived judgment in writing this, but hey - I'm going for it anyways...

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SOAK THE RICH, PART II - ELIMINATE HOME MORTGAGE DEDUCTION

Just got through reading a story from the Los Angeles Times dated 12/10/2012 that indicates that Fiscal Cliff negotiations may include reducing but NOT eliminating the mortgage deduction (click here to read it).  

BACKGROUND (EDUCATE YERSELF): When the federal government first began collecting income taxes from us in 1913, the mortgage interest deduction was allowed at that time, along with any other consumer interest, including credit card interest deductions and auto loan interest deductions. In 1986, the tax code was modified to eliminate the credit card and auto loan deduction, but the mortgage deduction was specifically kept because then-president Reagan said he wanted to keep it was a way to help common folks achieve the American dream of home ownership.  Those who say that the mortgage interest deduction was NEVER meant to help Americans buy and afford homes would appear to be INcorrect. More recently, the home mortgage interest deduction was limited to mortages on up to $1,000,000 and you can read about that here. I was not able to find out when the $1,000,000 limitation went into affect, but it was fairly recently.

Statistics have shown that mortgage interest helps those with household incomes over $100,000 much more than those below that income level. In fact, 78% of the $83,000,000,000 (83 billion dollars) went to those with household income above $100,000. Fair enough. I would not personally call those making $100,000 a year, especially in places like Los Angeles, New York and San Francisco, "rich". I would call them upper middle class, so let's go with that. The mortgage deduction really helps upper middle class citizens own homes - these are the homes that are built (think contractors) and maintained (think plumbers, electricians, etc.) by lower and middle income earners. Wonder what reduction in the mortgage interest deduction would do to those lower earners? The law of unintended consequences would rear its ugly head again (it almost always does), should reductions in mortgage interest deduction go into affect, in my opinion.

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SOAK THE RICH, PART I - STATE DISABILITY INSURANCE
"What an Outrage: Millionaires Get Unemployment, Too" Click on the article and read it, then read my comments below. The article is from the December 2012 AARP Bulletin, Page 8 (yes, I'm THAT old).

The AARP is irrationally opposed to millionaires who PAY THE MANDATORY UNEMPLOYMENT INSURANCE PREMIUM (aka State Disability Insurance, or SDI), and then when they get laid off, have the NERVE TO ACTUALLY TRY TO COLLECT on the insurance that they PAID for! What an outrage! Shouldn't they just shut the F*CK up and pay their mandatory unemployment INSURANCE premiums, and then when they are laid off, shouldn't those D*MN millionaires just forego collecting on the SDI they already paid for? Is this where our society is headed - Soak the rich, no matter what?

Surely, the 1 percenters don't understand how insurance works - collect on an insurance policy after they paid their premiums - how dare they? And what's next? How about having our wise and willful government confiscate the auto insurance pay-out of millionaires when they get into an accident? Isn't that the same thing? Just have the millionaires who reliably pay their auto insurance, then when its time to collect (i.e., their car is damaged by others), what right do those D*MN millionaires have to collect on their auto insurance policy? Doesn't our government need it more than the millionaires need it to fix their car? Whew. Glad I'm not a millionaire - the new public ENEMY number one, apparently.

New Legislation Proposed?:  The geniuses at the AARP note that lawmakers are proposing legislation to make the millionaires continue to PAY for unemployment insurance, but NEVER be able to COLLECT. The legislation is called "The Ending Unemployment Payments to Jobless Millionaires Act" (hey, at least the name is accurate for once!), and it is said to have wide support. At least our representatives should have the B*LLS to remove the word INSURANCE from the SDI unemployment insurance payroll deduction line item on everyone's paycheck, should the legislation get passed into law. Maybe they could just call it the Unemployment Tax - just what it would become.

This is all part of an unwise trend towards Means Testing benefits and entitlements that would otherwise accrue to those who either:
(A) earn a big paycheck, or
(B) are frugal and have saved and invested for a lifetime.

Read this fine article about the trend in Means Testing and Wealth Taxation by clicking here. Even though the article in "National Affairs" was written in the Fall 2011, it still applies today and gives a thorough treatment of the subject. Don't be ignorant - read the article and decide for yourself.

In case you don't understand how SDI works, here are some quick statistics for California. The bottom line is that millionaires pay a maximum of $1,009 per YEAR in SDI, and can collect up to a maximum of $1,067 per week.