NEWS Column

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 NEWS 
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Payroll Tax Holiday May Expire Jan 1

When Congress extended the Bush era tax cuts, one of the benefits to lower income earners was the introduction of a payroll tax holiday. For one year, 2% of your FICA (Social security & medicare payroll taxes) will not be collected and you get a little extra take home pay. The actual benefit depends on your income but this is a tax cut that affects a large portion of taxpayers (basically anyone who has earned income).

It turns out that the payroll tax holiday may be on the chopping block as Republicans look to block it because it do it’s part in “helping to get the economy moving again,” says Representative Jeb Hensarling of Texas (Republican). It’s the latest battleground in the debate over the economy and the federal deficit.

Various pundits will paint this however they’ll paint it but it just seems a bit hypocritical to OK huge tax cuts (the Bush tax cuts) and then point to the deficit when it comes to this one. I guess watching the deficit just happens to be the flavor of the day, I just wish we, the general public as a whole, weren’t so easy to deceive.

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Wells Fargo: $3 Monthly Debit Card Fee

Wells FargoIt was only a matter of time before we’d see the effects of the watered down Durbin Amendment. The Durbin Amendment originally capped debit card fees at 12 cents but after some wrangling, the Federal Reserve ultimately capped the rate to 21 to 24 cents, nearly double what was proposed last December. That fee cap was set in late June but won’t take effect until October 1st.

Wells Fargo is the latest bank to make moves to limit the damage of losing this revenue source. Starting October 14th, customers in Georgia, New Mexico, Nevada and Oregon will have to pay a $3 monthly fee for their debit card. What was once something a bank required in order to take advantage of promotions (to get the account stickier), is now something they’ve turned to in order to make more money.

I rarely use my debit card but I’d cancel it in a heartbeat if there was a fee. How about you?

(Photo: moneyblognewz)

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AARP Drops Opposition to Social Security Cuts

Social SecurityHaving just passed the thirty mark a short time ago, I usually don’t follow too much about that end of retirement on Bargaineering. I try to keep up to date on it, since I’d like to know how likely it is I’ll be collecting Social Security in thirty years, and so this latest news that the AARP is dropping its opposition to Social Security cuts is pretty big news. As we all know, lobbying (and money in general) equals influence in Washington and this opens the door for a restructuring of Social Security. A restructuring that we probably need pretty badly.

What’s wrong with Social Security?

Social Security, which was created in 1935, is facing a demographic challenge as the baby-boom generation retires with fewer younger workers to support it. The program’s actuaries say that by 2036, the program will have exhausted its reserves and will only be able to pay 77% of promised benefits. Between now and 2036, the government, which has spent the money held in reserve, will have to borrow to meet those obligations.

It’s always been the third rail in politics because seniors vote early and often. Alienating them is hazardous to your politic health.

I’m eager to see what happens out of this and hopefully it’s a compromise that results in a stronger/solvent Social Security program.

(Photo: andrewmorrell)

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Capital One Buys ING Direct

The news broke yesterday that Capital One would be the happy recipient of the keys to a brand new ING Direct. Everyone knew that ING Direct was up for sale, the ING Groep was required to sell it, but no one was sure who would be the happy new owner. The acquisition puts Capital One in the lead as the largest online bank, mostly because ING Direct was absolutely enormous. The final price? Around $9 billion, in a mix of $6.2 billion cash and $2.8 billion stock.

We speculated as to what would happen when someone purchased ING Direct, though we were using Ally Bank as the acquirer (those were the rumors at the time). Since it was a friendly acquisition, rather than an FDIC chaperoned affair, mostly nothing would happen.

I’m eager to see what happens because I have an online account with both banks.

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Citi Credit Card Data Hacked

Last week, while I was away on vacation, I received a call from Citibank about my credit card. Since I wasn’t keeping up to date on the latest financial news and gossip, I wasn’t aware that Citi had been hacked. Normally, when systems get hacked like this, I’ve dodged the bullet. This time, I wasn’t so lucky because my Citi mtvU card was a victim, part of the lucky 1% of North American credit card holders. While on the phone with Citi, they agreed to ship out a new card to me as soon as possible, which is standard procedure.

What gets a little annoying is that replacing a card, especially one so intertwined in my financial network map is time better spent elsewhere. This does, however, force me to update my map to reflect it’s current state – something I’d been too lazy to do. Thankfully, due to my desire to simplify our finances, the updated map has fewer lines on it. :)

What’s not cool is how Citi allegedly knew about the hack for weeks before going public.

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Pawlenty Suggests New Tax Structure & The Google Test

Taxes, especially within the context of our deficit, have become a popular subject these days. The latest person to weigh in was Former Minnesota Governor Tim Pawlenty when he proposed a new tax structure along with his announcement that he’d be seeking the Republican presidential nomination. The plan is simple:

  • Reduce corporate taxes from 35% to 15%;
  • Tax the first $50,000 of personal income at 10% ($100,000 for married couples), and 25% for the rest;
  • No taxes on capital gains, dividends, interest income, and inheritance.

Assuming all other tax deductions and credits were held the same, this would reduce tax revenue generated from individuals and families. The existing tax brackets tax at higher rates for personal income and there really are no “losers” if the tax structure were to go in this direction. Where I believe the proposal is the trickiest has to do with the corporate tax rate – where companies now have a greater incentive, because of lower tax rates, to recognize income they would otherwise keep abroad. We could generate more revenue because the tax rate is lower. Whatever actually happen is irrelevant, the interesting part of the discussion is what he said in conjunction with this proposal – The Google Test:

“If you can find a good or service on the Internet, then the federal government probably doesn’t need to be doing it,” Mr. Pawlenty says. “The post office, the government printing office, Amtrak, Fannie [Mae] and Freddie [Mac], were all built in a time in our country when the private sector did not adequately provide those products. That’s no longer the case.”

I think the test may be too simplistic but the idea merits discussion. The USPS’s insolvency was a topic of discussion here just recently (and I agree with the commenters that said a comparison to UPS/Fedex is unfair because they can cherry pick where they compete – i.e. not on first class letter delivery) but I think we need the same for every service. Do we need Freddie Mac and Fannie Mae to gobble up home loans? Perhaps, but it should be up for debate.

Thoughts?

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2011 Buffett Lunch at $2.345 Million, Four Days to Go

Recession? Not if you’re the type to bid on an eBay auction for lunch with Warren Buffett. The 2011 lunch for eight with Buffett is now guaranteed to exceed all but last year’s top bid of $2.63 million and there are still three and a half days to go. Looking at the bidding, it appears to be a hot and heavy tussle between two bidders. It looks like someone put in a reserve and the other is probing to find out what the reserve seems to be, finally discovering that it’s at $2,000,000.

It’s now $280,633 short of last year’s mark, with the current bid at a cute $2,345,678 (couldn’t spare the 90 cents? or the extra ten million to complete the trend?), think we’ll break it?

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Proposed New 1-Page Mortgage Disclosure Forms

The Consumer Financial Protection Bureau released two drafts of a proposed mortgage disclosure form that would make understanding your mortgage a lot easier. You can take a look at these forms for yourself.

This is long overdue. I’m all for simplifying using charts and graphs in a standardized way, not whatever way the mortgage lender felt like showing it. It also makes for a more informed and educated consumer. You can’t look at this form and not understand that, should you get an ARM, your payments could jump in the adjusting year (and each year afterwards). It also gives you a better understanding of the other costs, like taxes and insurance, which the mortgage lender may neglect to show you (though I doubt they ever do).

I don’t, however, think this is a panacea nor would it have prevented the “mortgage meltdown” that started a five years ago. I’ve always seen the home buying process as one of the most significant financial things you can do as an adult. If you’re going to be spending all that money, you should be taking the time to understand your mortgage even if it means wading through pages of documents. When we bought our house and signed ourselves to a liability of $230,000, I made sure to every last sentence of every document until it made sense. You are either a customer who does that or one who doesn’t. If you’re in the second group, this standardized form is a nice way to make sure everyone understands the basics but it won’t necessarily solve the root problem.

The two forms aren’t very different, just a reordering of information, but I have a slight preference for Form A (Ficus Bank).

What do you think of these forms?

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