If you’ve been following the latest on the economic stimulus package (or tax stimulus package), you’ve probably learned that we’re all waiting on the Senate to approve a bill that is similarly worded to the House’s H.R. 5140, the Recovery Rebates and Economic Stimulus for the American People Act of 2008 (great bill name!). Rather than outline the Senate version and assume you’ll be able to tell the difference, let me just explain the differences.

Incidentally, the latest news is that Senate Democrats can’t get the 60 votes necessary to move past debate (a step known as cloture) on the bill they’ve outlined so a vote will likely have to wait until next week - if ever. If things stall, they will accept the House version.

Latest news is that the Senate has passed its version of the bill, explained below!

Biggest Differences:

The biggest difference is in how the rebate amount would be determined. In the Senate version, individuals would get $500, couples would get $1,000, plus $300 per child with no income cap. The House version was $600 to individuals, $1,200 to couples, plus $300 per child but included caps at $75k for singles and $150k for couples. The removal of a cap also means that two large categories overlooked by the House’s plan would now get a tax rebate: retirees living on Social Security (~20M) and veterans dependent on government benefits (~250k). Those two groups are left out of the House plan because they didn’t meet the income tax paying qualifications.

Some other differences are that the Senate version would extend unemployment benefits an additional 13 weeks beyond the current limit of 26 weeks (something House Democrats tried to get but dropped in negotiations) and it would drop the increase on the dollar limit of conforming mortgages insured by Fannie Mae and Freddie Mac. (This was ultimately removed from the bill the finally passed the Senate)

There’s been talk about how if the Senate isn’t able to reach an agreement soon, that they’ll defer to the House’s bill. I personally think that including retirees and veterans, those missed by the House version, is crucial but the lack of a cap starts giving a money to folks who don’t really need it. While this is about stimulating the economy, I think a greater percentage of the stimulus would get spent if it were given to those on the lower end of the earning spectrum.

Thoughts?

(Photo by ShiftLft)

Biometrics, loosely defined as the process of using a person’s physical characteristics for identification, is slowly gaining popularity and their use may soon extend to credit cards. Privacy is always a hot button concern in the US, just think back to when AOL released all that search data, and the collection and storage of your physical characters, one of the most personal of things, is something that probably would both a lot of people. So I’m curious, if biometric data were required, would it bother you? If it was optional, would you elect it?

I have mixed feelings on this. I’m not a gung-ho privacy advocate in some aspects and conservative in others. For example, I’m comfortable with people being able to see the websites I surf but I don’t want my information stored somewhere if it’s not absolutely necessary. I can see the value of using biometrics as a means of authentication and so would definitely elect to “activate” any biometric-related security features. It’s easy to fake a signature, it’s much harder to fake a fingerprint or retina scan.

As you probably suspected, one of the places where biometric authentication has become pretty popular is Japan (they get all the cool gadgets and gizmos before we do!). One of the reasons is because in Japan you can generally withdraw from the ATM the equivalent of thousands of dollars each day, so the higher security measures are required. Granted, this is the bank, which knows all your financial information anyway, but it’s an example of how biometrics have been rolled out and accepted.

So, what are your thoughts?

(Image by Joits)

In the discussions on Huckabee’s support of the Fair Tax, the idea of a value added tax (VAT), a type of consumption tax, was raised. Having little experience with it myself, I thought it would be valuable to turn to someone who actually did - Plonkee. As a resident of the UK, Plonkee has more first hand knowledge of the VAT so I asked her to describe it for us. This is not to say that the UK’s version of a VAT is how every VAT is, but seeing as how our cultures are basically siblings, it’s not a bad thing to understand.p

What is VAT?

In the UK, as in almost all of rest of the European Union, we have both an income tax, and a consumption tax - in the form of VAT. Like most taxes over in the UK, they are levied by central government and are used to fund both central and local government functions and services.

VAT is a “tax on the final consumption of certain goods and services”. From the point of view of the consumer, it is a lot like a sales tax - charged on the end value of the product. However, from the point of view of businesses, it is slightly different. Everyone only pays net VAT on the value that they have added to the goods and services. They do this by charging the consumer (which may be a member of the public, or another business) the full price of VAT, and claiming back the VAT on the supplies that they bought to make up the product or service.

Example of how VAT works

I buy £40 of raw supplies, I am charged £7 by the supplier in VAT, for a total of £47.

The supplier pays the £7 to the government.

I make a table with the supplies, and sell it to a customer for £100. I charge them £17.50 in VAT, for a total of £117.50

I pay the £17.50 to the government, and claim back the £7, leaving me with net VAT payable of £10.50

This difference between a sales tax and VAT means that you have to pay VAT regardless of whether you are the end user of the supplies, product or service or not. This means that it is in some respects harder to defraud, but also that there are greater administrative costs.

Information specific to the UK

Most goods and services in the UK have VAT charged at 17.5%, but there are three other rates, reduced rate (5%) and zero rate (0%) and exempt rate (no VAT charged) - there are technical differences between zero rated and exempt rated, but for most purposes they are identical.

In the UK, many essential items are either zero-rated or exempt from VAT - these include non-luxury food and drink, books, drugs, transport, buying most property, renting a home, medical care, postal services, financial products and many financial services, and clothing for children. Others are charged at the reduced rate, such as domestic fuel and tampons.

In addition, for many purposes charities do not have to pay VAT, nor do government departments (since VAT is an indirect tax, in practice I think they pay VAT via their suppliers and claim it back from the government).

As VAT is charged on in-country consumption of goods (technically, inside the EU) people exporting goods, either privately or in business, can claim back the cost of VAT paid. This means that foreign tourists may be able to claim back VAT from participating retailers - this voluntary scheme is usually only available on larger purchases (over £50-£100).

Attitudes towards VAT

Prices for most consumer goods are displayed with VAT incorporated into the price. This is especially true for smaller valued items. When Jim asked me if I’d write this post, I did ask around my friends to see if anyone had any opinions on VAT. No one seemed to care either way.

Consumer taxes that are more contentious are the so-called “sin taxes”, fuel duty and alcohol and tobacco duties. Fuel duty means that the price for petrol [gasoline] is currently running at $7 a gallon or more. The price of a bottle of wine in the supermarket starts at the equivalent of around $5-$6. These are reasonably unpopular predominantly because they are much higher than in other European countries; most Brits traveling abroad for their annual summer holiday [vacation].

Jaffa Cakes

I mentioned earlier that VAT is not charged on non-luxury food. Both cakes and biscuits [cookies] are deemed non-luxury items, but chocolate covered biscuits are luxury items. Jaffa Cakes are about the size and shape of say an Oreo, and made up a disc of semi-hard sponge cake, topped with orange jam [jelly] and chocolate. The manufacturers of Jaffa Cakes, McVities classified them as cakes, and were taken to a tribunal by Customs and Excise, who argued that they were in fact chocolate covered biscuits, and so liable for VAT.

McVities defended their case by making a very large Jaffa Cake in order to demonstrate that they really were just mini cakes. They also argued that biscuits go soft when left exposed to the air for long periods, and cakes go hard and since Jaffa Cakes go hard when left out, they were in fact cakes. McVities won their case, and VAT is not charged on Jaffa Cakes.

plonkee from plonkee money writes about personal finance from a British perspective, mostly because she’s British, but everyone is welcome to join in the fun - things aren’t that different on the other side of the Atlantic.

(Photo of Jaffa Cakes by andrew_mrt1976)

My friend Miller at My Pocket Change has recently begun the wonderful journey that is the path to homeownership by submitting his information to LendingTree. Through LendingTree you can help determine what the bank(s) believe what homes are considered “affordable” to someone with your income and assets. While your own perceptions of what is affordable may be more aggressive or more conservative, having that additional data point helps. In talking with Miller, we both were getting confused as to the various terms. I remember getting a preauthorization letter, he’s working towards getting a prequalifying letter - though it sounds like we were providing the same types of documents… so what’s the difference? Were we just talking semantics? Here’s the difference:

Prequalifying Letter

A prequalifying letter is issued after a brief discussion with a mortgage lender, it requires no documents and is non-binding for the lender who issues it. The idea behind it is that you lean on the mortgage lender’s experience to give you an idea of what you are likely able to afford. You provide no documents and there is no credit check, the lender simply takes your word at face value and issues you the letter.

The value of the letter is in the eyes of the beholder. The seller knows you’ve at least talked to a lender but they can’t reasonable assume that just because you have this letter that financing is a sure thing. However, having this letter beats having nothing at all.

To give your letter a little boost, you can request that the lender check your credit and indicate on the letter that a credit check was performed. The number one reason for a loan falling through is that a credit check gave the lender cold feet (and given the current climate, they get cold feet a lot more now than they used to!).

Preauthorizing letter is another term for a prequalifying letter.

Preapproval Letter

If the prequalifying letter is the little bunny rabbit, then the preapproval letter is the roaring lion of the two. Preapproval letters are issued when you actually make a loan request, provide all the documentation, and the lender agrees to loan you the funds on the condition that the property appraises for enough and the title review comes up clean. You will have to submit all the paperwork (W-2s, bank statements, etc.) and be subjected to a credit check because the difference is in verification of your financial situation because the bank is agreeing to lend you money.

This letter is better in negotiating with sellers because it shows that: 1) you’re serious because you already talked to a lender, and (more importantly); 2) a bank has agreed to lend you money subject to some standard conditions. There are other benefits to this, such as a more diligent real estate agent (with this letter, you’re serious… not just window shopping), but the main benefit is with the seller - you are in a much stronger position.

Preapproval letters are not binding. The house hunting process can often take many months (I know someone who looked for a year) and so your financial situation could drastically change, it would be unfair to keep a lender (or you) to the terms of the letter. Whatever the reason, it’s important to note that this letter is not binding.

It’s All Semantics

In my research, I’ve seen a lot of places refer to a preapproval letter as a prequalifying letter and a prequalifying letter as a preauthorizing letter (and vice versa). Ultimately, the difference is in the rigor and due diligence of the review. If you are required to provide actual statements and W-2s, you’re getting the “Preapproval letter;” if you’re just chatting it up with no verification, then it’s “Prequalifying Letter.” Either way, the real estate agent and the seller will easily be able to tell the difference regardless of the document’s name and you’ll get the credit you deserve for it.

(Photo by slack12)

Before you laugh too hard and think this is a throwback to a “my dog ate my homework” joke, it’s not; this actually happened to a friend of mine. My friend had left her various tax forms on her desk, including her W-2s and 1099s, and gone out for the day. When she had returned, her dog had jumped onto the desk, grabbed the forms, and basically chewed them all up. They were absolutely destroyed with no hope of being reconstituted. Yep, she was ready to tell the IRS that her dog ate her W-2s!

Luckily, she had already prepared her taxes using online software like TurboTax or TaxCut so she still had all her information, she was just missing the forms. As it turns out, and anyone who has e-filed recently has recognized this, you no longer need to mail in the actual W-2 forms. The reality is that a copy of the W-2 (and 1099s) has already been sent to the IRS, so they already have the correct information, perhaps they requested the W-2 in the past just to confirm you had received it and were working off correct information? Not sure, but either way my friend didn’t need her W-2s and e-filed without incident.

So, the moral of the story is that you shouldn’t always scoff at someone if they try the “my dog ate the whatever” excuse and you should always e-file.

Cash, cabbage, paper, scratch, scrizzle, dineros, dough, whatever you want to call it, it’s all means the same - it’s cold hard cash. There is plenty of useless and fun trivia about currency that is certainly fun to know and you guessed it, I’m going to give you at least fifty fun facts about currency, mostly US facts but a sprinkling of international ones near the end. The first bunch have to deal with US money history in general such as the creation of the Mint and the Bureau of Engraving and Printing, then moves onto specifics about the bills and coins such as what they are made of. Then we move onto some of the interesting facts that deal with counterfeiting. The 50 facts end with a few facts on what you should do with damaged or mutilated currency and then a few international facts for those of you looking to get an edge in Trivial Pursuit. I hope you enjoy it!

Oh, and in keeping with the tradition of these 50 fun facts posts, I added a few bonus facts so there are a few more than 50 in the list. If you enjoy this list, you might enjoy 50 Fun Facts about Credit Cards and 50 Fun Facts about Banks.

US Money History

• The Massachusetts Bay Colony was the first the issue paper money in the American colonies in 1690.
• The Bureau of Engraving and Printing of the Department of the Treasury didn’t become the sole producer of currency until 1877.
• In 1894, the production of postage stamps was added to the responsibilities of the Bureau of Engraving and Printing.



• The Mint didn’t become part of the Department of the Treasury until 1873, before that they reported directly to the President.
• The Mint is responsible for producing military medals (such as the Silver and Bronze Stars, the Purple Heart and the Navy Cross) as well as the Congressional Medals.
• In 1865, the Secret Service Division of the Treasury Department was created to suppress counterfeit currency. Two years later, their mandate was expanded to include “detecting persons perpetrating frauds against the government.”
• As an aside: the Secret Service didn’t start informally protecting Presidents until Grover Cleveland in 1894. They officially began protecting Presidents until 1913 though they received funding (they received funding and began protection Presidents as far back as William McKinley in 1907).
• Legal tender refers to how currency can be used to satisfy “debts, public charges, taxes, and dues” but no one is required by law to accept it.

Bills & Coinage Facts

• According to the Treasury Department, there are three reasons why US currency is green (the “greenback”): 1) That color ink was readily available in large quantities back when they were first being printed; 2) It is highly resistant to chemical and physical changes, and; 3) it’s a color that the public identifies with strong and stable credit.
• Most coins have a copper filling with another metal on the outside, usually a mix of copper and nickel (75/25). Pennies are made of zinc coated in copper and nickels are entirely that copper and nickel mix.



• In 1943, pennies were made of zinc coated steel to conserve copper for the war, it gave them that silverly look.
• Between 1942 and 1945, during World War 2, nickels didn’t actually have nickel in them. It was a mix of copper, silver, and manganese.
• With the exception of WW2, nickel has stayed the same material composition since it was first designed in 1866. It’s the only coin that has stayed the same.
• Until 1804, none of the non-copper coins made in the US had their value engraved on it, people just had to know based on size. It wasn’t until the quarter in 1804 were the values engraved on the coin.
• The first batch of coins produced by the Mint was 11,178 copper cents in March 1793.
• “In God We Trust” was first put on coins in the Civil War but didn’t make it onto all coins until 1955.
• “E Pluribus Unum” was first used in 1795. “E Pluribus Unum” means “One from Many,” one country from many states.
• Abraham Lincoln was the first person to appear on a regular US coin in 1909.
• Queen Isabella of Spain was the first woman to appear on a US commemorative coin in 1893. She’s also the only real person to appear on a coin produced by the Mint.



• In general, living people don’t appear on US coins but Calvin Coolidge in 1926 became the first President on a coin while he was still alive.
• To determine which Mint facility produced a coin, look for an engraved letter on the front. “P” means it came from Philadelphia, “D” means it came from Denver, and “S” means it came from San Francisco.
• The lifespan of a coin is thirty years, the lifespan of a bill is a mere 18 months.
• Bills today are 2.61″ wide by 6.14″ long with a thickness of 0.0043″.
• Bills are made of a cotton (75%) and linen (25%) fiber mix known as “rag paper.” This is distinctly different from regular paper, made from the cellulose in trees. This helps the paper withstand wear and tear, like when you accidentally wash a hundred dollar bill in a pair of jeans!
• Nearly half the bills printed by the Bureau of Engraving and Printing are one dollar bills (~45.47%)
• 95% of the bills printed each year are used to replace bills already in circulation.
• Each bill is supposed to weigh about a gram, so there are 454 bills per pound. A million dollars in $100 bills would weigh a little over twenty-two pounds. If you used $1 bills, it’d be about a ton in weight.
• If you instead used pennies, a million dollars would weigh around 246 tons!
• If you were to stack a million $1 bills, it would be around 361 feet high.
• Only one woman has ever appeared on a bill… can you guess who it was? Martha Washington appeared on the $1 Silver Certificate of 1886 and 1891, then appeared on the back of that bill in 1896. Not a single woman since!
• It costs about 6.2 cents to print each bill (2007).
• The cost to make each coin varies because of the material inside of them but a USA Today article puts the price per penny at 1.23 cents and the price per nickel at around 5.73 as of mid-2006.
• During the Civil War, 3 cent bills (”fractional currency”) were printed because coins were being hoarded for their intrinsic value. The largest denomination bills were the $100,000 bank transfer note in 1934.

Counterfeiting Facts

• Do you know why there are ridges on the edges of coins? Back in the day, when coins were made of gold and silver, people would shave off or clip the edges of the coins and then save the shavings for later. While illegal, it was difficult to catch because coins were always irregularly shaped because of poor manufacturing so the ridges helped in detecting that.
• It wasn’t until 1877 that Congress passed a bill that prohibited the counterfeiting of any coin, gold or silver bar.
• It’s been estimated that between 1/3 and 1/2 of all bills in circulation after the Civil War were fakes! (this was the impetus for creating the Secret Service)
• In 1980, 777,957 $50 and $100 were passed and seized. That number increased to 1,240,840 by 1990. (Federal Reserve Bank of San Francisco)
• In 1994, with the Crime Bill Public Law 103-322, Title 18 USC Section 470 was revised to state that “any person manufacturing, trafficking in, or possessing counterfeit U.S. currency abroad may be prosecuted as if the act occurred within the United States.”



• Counterfeiting money is a felony, convictions can result in prison sentences for as long as 15 years and fines of up to $15,000.
• If you counterfeit a coin worth more than 5 cents, you’re subject to the same laws. If you alter an existing coin, you are violating Title 18, Section 331 of the USC. The crime is punishable by a fine of up to $2,000 and/or prison time of up to 5 years.
• If you want to print funny money, make sure it’s a different size (50% larger or 25% smaller). If you print only in black and white, that’s okay too as long as you satisfy the size change.
• Counterfeit bill detecting pens work by reacting with the cellulose found in regular paper. Since bills produced by the government is made on this special rag paper, it doesn’t react in the same way to the pen.
• The ink used to print the bills are magnetic and so vending machines use that as one of the means of detecting whether a bill is legitimate (since it can’t rely on many of the usual methods people can such as touch).
• The Treasury Department is looking to enhance the designs of bills every 7-10 years. This began with the $20 bill in October 2003.

• On March 6th, 2004, Alice Regina Pike tried to pass a $1,000,000 bill at a Wal-Mart in Georgia (the largest bill in use is the $100). She might have gotten away if she only used a $200 bill!

Damaged/Mutilated Bills & Coins

• If you have a damaged bill and you have more than half, you can bring it to a commercial bank to be replaced. The bank will then send it to the Fed along with other damaged and worn bills.
• If it’s damaged and you have less than half, you’ll have to send it to the Treasury Department.
• Damaged coins? Same process, except the bank goes to the Mint.

International Money Facts

• Largest numerical denomination bill ever is 1 Milliard Hungarian Pengő (1,000,000,000,000,000,000,000) in 1946. (Wikipedia) It was only worth twenty cents US! Hyper-Inflation is rough.
• The oldest currency bills known to have existed come from China and the Han and Tan Dynasties. The earliest bills to still exist (as in not disintegrated) come from the Ming Dynasty and were issued between 1368-1399.
• The largest bill by size is the 100,000 Piso of the Philippines according to the Guinness Book of Records, it’s about the size of legal paper.
• In 180 other countries, differently denominated bills are different in either color or size or both. In the US, all bills are of uniform size and similarly colored - an issue that has been taken up with the courts lately.

If you thirst for more facts, there are plenty at the Bureau of Engraving and Printing. Also, if you’re a fan of looking at old bills, you can check out this incredible American Currency Exhibit provided by the Federal Reserve Bank of San Francisco.

While the 2008 tax stimulus check has not yet become a reality (in fact, it’s far from it), I wanted to share five ideas you should consider for this new “found money.” The bottom line is that you should take care of yourself, first and foremost, and use this money to make your life a little easier.

#1. Spend It On Essentials

If you’re at the point where you need the $300 to continue, by all means spend it on the essentials you need to survive. If you’re at this point, this is a much needed breath of fresh air… take it. Don’t let anyone tell you that you should save it for the future when you need to put food on the table now. However, you must take stock and decide whether you’re spending this on needs or just spending this on wants. You also need to look down the road at your own personal finance decisions because you’re in a tough spot - this stimulus check may not come! Cut back on some of the wants in your life and you can create your own $300 savings for the year very very easily.

#2. Pay Down Credit Cards

I know many people carry credit card debt from their years of indiscretion and that’s perfectly fine. Life is about learning, it’s about making mistakes, and since you’re still standing then hopefully the lessons have taken, right? So, if the stimulus check comes through, please do the responsible thing and pay down some of this ridiculous 20%+ interest rated debt because it’s holding you back. Hey, if you’re reading this, chances are you’ve already realized this so good for you.

#3. Pay Down Other Debts

The government wants you to spend this tax stimulus check to lessen or eliminate the effects of a potential recession, don’t listen to that crap. Take care of yourself. That means taking this money, paying off any other high interest debt (I called out credit cards specifically because of their high interest rates) because that enables you to be more efficient with your money in the future. If you lose $50 each month to interest payments, that’s $50 you can’t spend on gas, groceries, whatever.

#4. Pad Your Emergency Fund

Let’s be honest, if there is going to be a recession then your $300 (or whatever it turns out being) isn’t going to save the country. Do the selfish thing and pad your emergency fund. If you have 6 months (or a year) of expenses in there already, good for you - put more. Whatever you planned for your emergency fund was in a non-recession-threatening world right? The environment has changed so you might want to put a little more into that emergency fund.

#5. Fund Retirement Accounts

$300 today, appreciating at a conservative 7% a year, will turn into $1,160.91 in twenty years. If you have 40 years, it’ll become $4,492.34. Retirement will be a beautiful time in your life if it’s adequately funded. Do you need to spend the $300 right this minute or can you spare it to fund your happiness when you don’t have to work 40 hours a day?

Anyone else have any good (responsible) ideas for this (potential) tax stimulus check?