NEWS Column

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The Expiring Payroll Tax Holiday

In 2008, many people received a stimulus check of a few hundred dollars. In 2011, many people got a payroll tax holiday instead of a check in the mail. There wasn’t a lot of news made about the payroll tax holiday but it’s almost as big of a “stimulus check” as the first stimulus check.

Surprisingly, based on how it was structured, the more you made, the more of a holiday you got because it was based on a percentage of your payroll taxes. When the “deficit supercommittee” failed to reach an agreement yesterday, that payroll tax holiday was put in jeopardy. You see, it’s set to expire at the end of the year and people expected the supercommittee to address that. As it stands, they’ve addressed… well, nothing. 🙂

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Founders Federal Credit Union Gives $10 Million

Founder Federal Credit Union, a credit union in Lancaster, South Carolina; will be giving $10 million back to its members in the form of a bonus dividend. About half will go to depositors based on their interest earned and the other half will go to borrowers based on their interest paid. There’s no doubt that its 200,000 members are thrilled.

This illustrates the fundamental difference between credit unions and banks. Both pay out dividends and both pay them to their “owners.” The difference is that the depositors and borrowers are the owners of the credit union and that’s why it’s going back to them. Commercial banks pay dividends also, but the customer isn’t the owner. Shareholders are. Founders Federal has returned $30 million dividends in the past eleven years. This is just one of the reasons why credit unions kick ass.

Another warm and fuzzy moment? Bonuses for employees. $1,300 for full timers and $650 for part-timers.


Stamp Price Increase [Jan 22, 2012]

Forever Stamps IncreaseWant to get a 2% return on an investment in just one day?

Buy a Forever Stamp from the Post Office on January 21st, 2012 and mail something on January 22nd (well, on the 23rd because the 22nd is a Sunday). On January 22nd, the post office is set to increase the current stamp price of a first class letter from 44 cents to 45 cents. Also increasing will be the price of mailing a post card, a three cent increase to 32 cents. Letters to Canada and Mexico will now cost 5 cents more to 85 cents. Letters anywhere else outside the United States will see a stamp increase of 7 cents to $1.05 a pop.

Forever Stamps, as you’ll remember, can be used on any first class letters so buying them today means you don’t need to find penny stamps come January 22nd.

(Photo: queen_of_subtle)


Social Security Cost of Living Adjustment for 2012 – 3.6%

On several occasions, when playing golf with my good friend and his dad, the dad has joked about how he hasn’t gotten a raise in three years. He’s semi-retired and is getting Social Security payments and his “I haven’t gotten a raise” joke is in reference to how Social Security hasn’t gotten a cost of living adjustment (COLA) in three years. The last time there was a COLA for Social Security was back in 2009, when it was increased 5.8%. The SS COLA is supposed to adjust benefits so they keep on pace with inflation, which seems like a very sensible thing to do, but official inflation figures (CPI-W is used for SS COLA) has been low these past few years and a 3rd quarter spike in inflation in 2008 (resulting in that 5.8% increase for 2009) gave the COLA a ton of ground to cover, so there has been no adjustment these past few years.

Well, the wait is over, the cost of living adjustment for Social Security will be 3.6% starting in January 2012. That’s the good news. The bad news is that the premiums retirees are expected to pay for Medicare Part B is probably going to go up, thus taking a piece of that COLA bump. That won’t be announced for another month though.

Medicare will cut Social Security’s “raise” in 2012 [Reuters Money]


New Citi Checking Account Fees

CitibankLast week, Bank of America caught a lot of flak for introducing a bunch of fees on their checking accounts. This week, it’s Citi’s turn and the fees will start in December.

  • If you have a mid-level Citibank account, you’ll get a $20 per month fee if you don’t maintain a balance of at least $15,000 in your accounts, up from $6,000.
  • EZ Checking account holders will now see a $15 per month fee if they don’t maintain at least a $6,000 balance and the EZ Checking package is getting phased out.
  • Basic Banking accounts will see a fee increase of $2 to $10 per month, which you can avoid if you maintain a balance of $1,500 or make one direct deposit and one automatic online payment per month.

Today it’s Citi, last week it was Bank of America, tomorrow it will be another brick and mortar bank. It’s only a matter of time. If you want to avoid being forced to change banks because you want to avoid fees, start moving your banking now.

(Photo: redvers)


Bank of America to Add New Bank Fees

Many news outlets have been reporting that Bank of America will be instituting new fees to those with low account balances and it comes as no surprise. They are just the latest to announce tests in which account holders in certain states would be seeing these new fees. Wells Fargo has done this, Chase has done this, and many more will follow. While I support legislation to clean up aspects of our finances, like the Fair Credit Reporting Act, some laws have unintended consequences. This aspect of the Dodd-Frank bill will simply shift overdraft fee and transaction fee revenue into account maintenance fees.

Quote of the Washington Post story:

“We’re in a new economic reality. We’ve seen our customers’ behaviors change, their financial needs change,” said Susan Faulkner, Bank of America’s deposits and card product executive.

We should read that as – “We’re in a new economic reality. We aren’t banking billions in fee revenue anymore and so we need to make a change.” While I appreciate the new reality, and banks deserve to make money just like any other business, I do find the corporate-speak to be entertaining.

In the end, it’s almost as if we’re just playing a game of whack a mole. Banks charged too much in interchange fees and overdrafts, so the government stepped in. Banks will now just charge annual fees instead. There’s no law that says a bank is required to offer a free checking account and there likely will never be one. Banks are beholden to their shareholders and shareholders love earnings. When laws reduce those earnings, they have to find new sources of revenue and these new fees are it.

I have a Bank of America account and I don’t intend to ever keep $50,000 in deposits there so if they institute a fee, I’ll simply use my Ally Banking Online Checking account as my primary account. No fees, they reimburse ATM fees, and I can mail in my checks (until they offer scanning). That’s all I want from a checking account.


Buffett Tax Rule: The New AMT

Today’s a big day for the deficit hunters as President Obama will be proposing a variety of tax changes (here’s a sneak peek from the NY Times). The most notable of these change is the introduction of a new tax rate for people earning more than $1 million a year. At the moment, the top tax bracket is $379,150. Unfortunately, President Obama hasn’t given details on what the rate should be, what it should affect, and has left that as a task to Congress as part of a larger effort to revamp the tax code.

It sounds a little like the AMT. When the Alternative Minimum Tax was enacted in 1982 (the version that is in existence today), it was designed to make sure that the super wealthy paid a minimum tax, despite all the taxation “options” (read: chicanery) they could employ. Today, the AMT is pilloried annually because it was never indexed to inflation. What was considered rich in 1982 is not considered middle class and so every year Congress needs to put a band-aid on the problem so that more and more people are unjustly ensnared.

The difference here is that the AMT excludes and limits certain deductions and credits when you exceed a certain threshold. This sounds like we’re just introduce a new tax bracket at the higher end. Tax brackets are adjusted for inflation annually so this avoids the inflation problem that plagues the AMT.


Potential Refinance Plan for Mortgages

The housing market continues to be pretty weak, as it has been for several years, and it appears that the Obama administration is considering proposals that would allow homeowners with government-backed mortgages to refinance at today’s interest rates, which are historically low at around 4%. The idea behind this move is that by allowing homeowners to refinance, it lowers the monthly cost of those mortgages and frees up household income to be spent elsewhere – which would have a stimulative effect on the economy (consumer spending is a big piece of that).

It’s still extremely early in the process and the proposal would have to overcome resistance. It’s an idea that has been around for quite some time too, dating back to 2008, and is appealing because it shouldn’t increase the deficit and it doesn’t require Congress to do anything.

No plan is without cost though and the losers would be the holders of those mortgages. If I borrowed $100 from you and promised that I would pay you $110 in a year, you’d lend it to me because a one year, 10% loan, fits your investing plan. If in a month I were to come back and give you $101, I mess up your plans because now you have to find a new investment a few months early.

Also, this plan doesn’t help people who are underwater because you aren’t able to refinance for more than the value of your home.

I think it’s good that we’re talking about ways to stimulate the economy that don’t add to the deficit.

Thoughts on this?

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