Dealers are looking to move inventory to make way for new models. Consumers have one other advantage: Americans are keeping their cars longer, and that means fewer total buyers with lots of new vehicles to choose from.
Monday, 31 December 2012
Friday, 21 December 2012
Drought, Economics And Your Holiday Feast
Think your prime rib holiday dinner is more pricey this year? You're right. But maybe not for the reason you think.
Todd Patterson/iStockphoto.com
Think your prime rib holiday dinner is more pricey this year? You're right. But maybe not for the reason you think.Todd Patterson/iStockphoto.com Nobody really wants to think about economics, the famously dismal science, while sitting down at a table loaded with love and calories. Like it or not, though, supply and demand drive food production and set the price of dinner.
So, in a season of feasts, what are the business stories on your holiday menu?
The big one is last summer's drought and its slow, rolling impact on food prices. If you recall, the Midwest suffered through one of the worst droughts in half a century. Corn yields fell to a level last seen in the mid-1990s. With corn in short supply, prices for animal feed spiked. There were predictions that pork, poultry and beef producers would go out of business, and consumers would see a shortage of meat.
So far, most of those fears have not come true. Poultry and pork producers seem to be riding out the crisis. Data collected by the U.S. Department of Agriculture don't show any major cutback in production, and prices are stable — although that still could change in a few months.
Beef prices, on the other hand, did hit new records in November. But industry economists say you can't blame the great drought of 2012. It's too soon. The cycle of beef production, from breeding to slaughter, takes so long that today's prices reflect decisions that beef producers made a couple of years ago. According to Steve Meyer, president of Paragon Economics, we're paying more for beef today because of two things: a drought in 2011 that hit Texas and Oklahoma, and a long-term rise in corn prices that began back in 2008. Considering these time lags, it's quite likely that this year's drought will influence the supply (and price) of beef for at least another year or two.
If you're pulling out butter and milk for baking, though, or laying out a spread of cheese, you're getting closer to the drought's real impact. High feed prices have hit dairies hard, especially in California. Many milk producers are sending cows to slaughter, milk production is falling, and prices are rising.
Yet even here, economic forces push in complicated ways, and the drought is only part of the picture. Dairy prices aren't much higher than last year, but for different reasons. Last year, it was because of rising demand, in foreign markets, for U.S. cheese. This year, it's because U.S. farmers are going out of business.
It would be too bad to end on such a dreary note, so let's turn our attention briefly to another holiday staple that's making a stirring comeback: sweet potatoes.
U.S. consumption of sweet potatoes hit an all-time high way, way, back in the 1930s, then went into a long, slow decline, bottoming out in the 1980s. But now the sweet potato is back. Americans are eating twice as much of this vegetable as they were 20 years ago. The reason? Sweet potato fries. This vegetable is no longer just a holiday staple; it's claimed a spot in the real centerpiece of the American diet: the snack.
For more on the traditions and costs of our favorite holiday foods, check out my radio story by clicking on the listen link above.
Thursday, 20 December 2012
From Shoes To M&M's, Custom-Made Products Take Off Online
High school student Jon Ledbetter designs his own "NikeiD" sneakers. Ledbetter can post his designs on Nike's website, where other shoppers can also order them.
Kathy Lohr/NPRIt wasn't long ago that all consumers went to retail stores to buy things. These days, of course, you can get just about anything online. Some companies are now taking that shopping experience to the next level, allowing customers to design almost anything individually — from a trench coat to a batch of M&M's.
Lindsay Stewart, a senior at Holy Innocents' Episcopal School in Atlanta, is a Converse fan — and an avid Converse custom designer. Converse, like Nike, offers sneakers that customers can customize, mixing colors and patterns to bring their ideas to life.
"You can do half of the shoe stars and [the] other half is still simply white," Stewart says, showing off her design. "You can incorporate the color you specifically want so it can easily match your outfits."
Walking Advertisements
Stewart has designed three pairs this year: one with a star pattern, another for the Fourth of July and a neon mix she made for a party.
"Students really love showing off, and kids love showing off who they are," Stewart says. "And ... me spreading the word about how I designed these shoes led to all my friends wanting to design their own."
That's just what retailers are hoping for — getting customers involved and having them tell others about their experience.
The only drawback may be the cost. These custom-designed shoes are about 20 to 25 percent more expensive, depending on the design.
Customization started with computers more than a decade ago. Now, you can create your own T-shirts, jeans and custom-blend cosmetics.
Some luxury brands are getting involved, too. On the Burberry Bespoke website, it's hard not to be seduced by the elegant tune playing under close-ups of hand-sewn fabric and old-world charm. Burberry allows customers to create their own trench coats, but they start at more than $2,000 — and no returns are allowed.
And at Prada and Louis Vuitton, you can make your own handbags and shoes with limited options to preserve their high-end designer look.
M&M's lets customers create their own mix by choosing colors and even adding personalized photos and messages.
MyMMs.com screengrab
M&M's lets customers create their own mix by choosing colors and even adding personalized photos and messages.MyMMs.com screengrab Building Brand Loyalty
"It really helps build a relationship with their customers," says Ann Marie Fiore, a professor of apparel at Iowa State University. "You're always looking at building that brand loyalty."
Fiore says companies face extra upfront costs in setting up the customization process. On the other hand, they save on product development costs because consumers are doing that for them and they don't have to store big inventories.
Fiore says one of the biggest growth areas is food. A site called Chocomize, for example, lets you create your own gourmet chocolate bars by adding fruits, nuts and even sugared rose petals.
"I can see this as being something that's really attractive, where people feel more confident about their choices," Fiore says. "And there's not so much risk. So you're not paying $425 for a pair of shoes, you're paying $8 for a candy bar."
Fiore predicts that all means customization will only continue to grow for a variety of products.
M&M's is already doing it. You can choose your own colors, add designs and even have your own photo printed on the tiny candies.
I ordered my own Christmas-colored mix with a snowman print, chose expedited shipping and had my package two days later. They're exactly what I ordered, but the cost is four times higher than if I'd bought traditional M&M's at a store. And shipping is extra, too.
Creating Your 'Perfect Expression'
Dan Michael, research and development director for Mars Retail Group, which makes M&M's, says it took the company about three years to develop its customization process. He says the company gets about half a million orders a year, with weddings and birthdays as the biggest draw.
"The candy certainly serves as ... a blank canvas for our customers to create their perfect expression," Michael says.
Back at Holy Innocents' High School, student Jon Ledbetter says personalizing clothes and shoes is fun for him and for lots of young people. He plays basketball and has designed about a dozen pairs of "NikeiD" sneakers, including one featuring the school's crimson and gold colors.
"People are like, 'Where did you get those from, where did you get those from?' I made 'em so you can't get them anywhere else," Ledbetter says and laughs. "They're mine. They're my creation."
Ledbetter can post the shoes he made on Nike's website, where others can comment or even order his design.
Two German professors have documented some 500 international mass-customization sites and the number is growing.
Forget The Register: Stores Use Mobile To Make Sales On The Spot
A Nordstrom salesperson shows a customer an online selection of shoes on an in-store iPad. Like some other retailers, Nordstrom is using mobile devices to make on-the-spot sales and check companywide product inventory instantly.
Courtesy of Nordstrom
A Nordstrom salesperson shows a customer an online selection of shoes on an in-store iPad. Like some other retailers, Nordstrom is using mobile devices to make on-the-spot sales and check companywide product inventory instantly.Courtesy of Nordstrom The women's shoe department at Nordstrom's flagship store in Seattle is bustling. Shoppers are trying on everything from stilettos to rain boots — and when they're ready to buy, they can pay up right where they are.
The sales associate simply whips out a modified iPod Touch and scans the shoe box's bar code. The handheld device contains a credit card reader, too, so the customer can just hand over the plastic and sign with a fingertip. There's no trek to the cash register and no line to wait in.
At department stores like Nordstrom and at other traditional retailers, mobile devices are slowly beginning to supplement, and even replace, other methods of payment. In many cases, buying something is becoming more efficient and more personal.
No More 'Clunky' Cash Registers
"We think the days of the big clunky cash register ... anchoring down a department are really going away," says Colin Johnson, public relations director for Nordstrom.
"We are always going to have a place for the cash and we'll certainly take care of however the customer wants to pay," Johnson says. "But we do see the future as essentially completely mobile."
Mobile payments certainly make shopping easier. And while customers like it, retailers benefit, too. When shoppers pay on the spot, they don't have time to change their mind and decide they don't really need what they are about to buy.
In addition to boosting sales, mobile technology is often less expensive than the old-fashioned kind. And removing cash registers also frees up valuable real estate inside the store, say industry experts like Brian Brunk of Boston Retail Partners.
"There isn't a retailer we talk to that isn't embracing at least a blended, if not an 'all-in,' approach to mobile point-of-sale," Brunk says.
More stores are processing instant payments using mobile devices, enabling customers to bypass the checkout counter.
Courtesy of Nordstrom
More stores are processing instant payments using mobile devices, enabling customers to bypass the checkout counter.Courtesy of Nordstrom But the changes taking place in retail go well beyond checking out via handheld device, he adds.
"You have to embrace the online — the digital world," Brunk says. "It's really now, how are you going to blend those two together? Because that's what the customer is really expecting."
Getting Goods To Customers Who Want Them
Take inventory, for example. It wasn't all that long ago, says Nordstrom's Colin Johnson, that customers found it charming when a clerk called around to different stores in search of an out-of-stock item.
But "those days are long gone," Johnson says. "You've got to be rapid, you've got to be on the spot. You have to have that information at your fingertips."
Or, more precisely, on an iPod — which is how shopper Amidy Doolittle purchased some glittery flats and a pair of suede shoes. "I just had [the clerk] order some shoes that weren't available in the store," Doolittle explains. "He looked them up on his mobile device, and I paid sitting right here in my chair."
What's most remarkable about Doolittle's purchase is that the sales clerk had access to Nordstrom's entire companywide inventory on his device.
While that might sound pretty basic to many shoppers, Kasey Lobaugh, a retail expert at Deloitte Consulting, says some retailers have struggled to integrate inventories of in-store and online products.
All too often, Lobaugh says, shoppers would be told their desired item was out of stock, when the retailer did, in fact, have the goods.
And in another plus for retailers, he says, "If you are able to fulfill the item from the place where the items are turning the slowest, you're able to decrease the markdowns that you have to take" if you were to sell that item at its original location.
In other words, winter jackets languishing in a Florida store can be quickly shipped to a Seattle shopper — and sold at full price.
Embracing 'Showrooming'
Yet another change under way relates to something you see all the time: the practice known as "showrooming." Increasingly, customers with smartphones are checking out products and competitors' prices online as they roam the aisles of brick-and-mortar stores.
Early on, Lobaugh says, some retailers were unhappy about the trend and weren't keen to embrace it.
But "our data would say don't resist it," Lobaugh notes. "Give them the capability. Enable Wi-Fi in your store so that the consumer can access more information, because the conversion rate goes up," he says — meaning, smartphone-toting customers who do research on the sales floor are actually much more likely to make a purchase.
And by 2016, Deloitte projects, roughly one in five consumers will be using their smartphones in precisely that way.
Looming Spending Cuts Would Hit Hard All Over
Alan Krueger, chairman of the president's Council of Economic Advisers, warns that consumer spending will drop if Congress and the White House fail to reach a deal on spending cuts and tax increases.
Jewel Samad/AFP/Getty Images
Alan Krueger, chairman of the president's Council of Economic Advisers, warns that consumer spending will drop if Congress and the White House fail to reach a deal on spending cuts and tax increases.Jewel Samad/AFP/Getty Images Tax increases are only a part of what lies ahead if Congress can't come to an agreement to avert the fiscal cliff by the new year. Massive spending cuts will also kick in — and those cuts will be felt throughout the economy.
The current stalemate got under way two years ago when Congress, locked in a bitter partisan battle over whether to extend the George W. Bush-era tax cuts, passed what was known as the Budget Control Act of 2011.
If Congress couldn't resolve its spending battles by the end of 2012, the law said, there would be what are called "sequester cuts" — automatic, massive reductions in nearly every part of the budget.
Across-The-Board Cuts
Cary Leahey, senior adviser with the consulting group Decision Economics, says the cuts affect both good programs and bad.
"Each particular program which would be affected would all be cut pretty much by the same percentage amount," Leahey says. "And it would not be done rationally — it would just be done that you cut all programs the same."
Altogether, the cuts would eliminate more than $110 billion in federal spending in 2013 alone. Nearly half of that would be in defense spending. But there would also be cuts in education, health care and law enforcement. Much of that money goes to the states in the form of grants.
"State budget officers and policymakers have already had to make a series of really serious decisions on balancing their budgets," says Ingrid Schroeder, director of the Fiscal Analysis Initiative at the Pew Center on the States. "This is going to add a whole other layer of complexity to some already tough decisions that they've made."
'You're Going To Feel It'
Schroeder says states like Virginia and Maryland, which depend heavily on federal spending, will take a hit, as will states with a strong military presence, like Hawaii. Former Federal Reserve Vice Chairman Alan Blinder says cuts in defense spending have a way of spilling over into the rest of the economy.
"If you run a business near a military base — a cafe, a grocery store, a bowling alley ... a restaurant, anything — and the military base has meaningful cutbacks in spending, you're going to feel it as a civilian," Blinder says.
But even without this kind of spillover effect, Blinder says the looming sequester cuts will slow the economy at a time when it's already weak. He says the cuts could reduce economic activity by anywhere from 0.7 percent to 1 percent.
And a 1 percent reduction in economic activity, he says, means about a 1 percent cut in the labor market.
"And 1 percent of employment in the United States now is roughly 1.3 million jobs," Blinder says. "That's not good."
A Little 'Wiggle Room'
Blinder notes that the cuts won't necessarily happen right away; the government, he says, has some wiggle room about when it implements them. So if the two sides are close to an agreement on Jan. 1, they can stall a bit. But he also says the window for solving the dispute is closing.
"My judgment would be that if this is not settled by the second half of January, we're going to feel severe effects on the economy."
And there are signs the effects are already being felt. Leahey, of Decision Economics, says companies need time to plan when they bring in new people — and that they may already be holding back on hiring in anticipation of the cuts.
"So if the numbers for this Friday's employment report are dismal, it may not be [due to Hurricane Sandy] — it may be preparing for these sequester cuts," Leahey says.
All of this will be happening at a time when consumers are already feeling the bite from higher taxes — and that could be an even bigger problem for the economy.
Why Not Raise Capital Gains Taxes?
As a part of the series, "Why Not," Tell Me More is looking at policies that were once untouchable but now may be on the table. Today, NPR Correspondent Tamara Keith and Emory Law Professor Dorothy Brown dig into the pros-and-cons of raising taxes on capital gains and dividends.
Copyright © 2012 National Public Radio. For personal, noncommercial use only. See Terms of Use. For other uses, prior permission required.MICHEL MARTIN, HOST:
Switching gears, we're going to turn now to some economic news. The clock is winding down for the president and Congress to reach a decision on the nation's budget before the automatic spending cuts and tax hikes known as the fiscal cliff come into play. Over the weekend, there were some signs of movement. The Speaker of the House John Boehner offered to accept a tax rate increase for Americans making more than $1 million a year, and negotiations are continuing.
We have been taking a look at items that used to be considered untouchable, but may now be up for grabs because of the severity of the circumstance facing the country. We're calling the series Why Not? And today, we're going to ask: Why not change the law taxing capital gains and dividends?
With us now is NPR congressional reporter Tamara Keith. Joining us once again is Dorothy Brown. She's a professor of law at Emory University.
Tamara, Dorothy Brown, welcome back. Thanks for joining us once again.
TAMARA KEITH, BYLINE: Glad to be with you.
DOROTHY BROWN: Thank you.
MARTIN: Tamara, I'm going to start with you. Let's keep it simple. What are capital gains and what are dividends?
KEITH: OK. So capital gains are - that would be the tax that you pay when you sell a stock and you realize a gain. Or, say, you sell a business. Like, for instance, George Lucas sold Lucasfilm this year for something like $4 billion. He would be taxed on that capital gain.
MARTIN: So the profit that you make on selling something of value.
KEITH: Right, like a business or a stock...
MARTIN: Is a capital gain.
KEITH: ...is a capital gain.
MARTIN: And what's a dividend?
KEITH: A dividend is a way that companies share their profits with their shareholders. So if you own a stock of, say, share of stock in McDonald's or Wal-Mart or something like that, at some point during the year or several points during the year, they may say, well, for every share you own, we're going to give you $1.50 or whatever it is. For instance if you owned Wal-Mart stock this year, you would get $1.59 for every share you own, and that's your dividend.
MARTIN: OK, so we're going to get into some of the specifics of the proposals on the table in a minute, but I did want to ask whether the tax treatment of capital gains and dividends has been considered untouchable in the same way as, you know, we've talked about things like Social Security, we talked about things like the mortgage interest tax deduction and the tax treatment of those has gone back for decades.
And so people kind of consider it a settled issue. The tax treatment of capital gains and dividends isn't quite like that, is it?
KEITH: It's been changing throughout history, basically. Often capital gains have had sort of a preferred status in the tax code because it rewards investment is the idea. But dividends have long been taxed, until very recently, just like ordinary income, just like the money you'd get from your wages.
MARTIN: So what are some of the proposals on the table?
KEITH: Let's go through the three sort of scenarios here. One would be if we go off the cliff. If we go off the cliff, then taxes would rise on both capital gains and dividends. For capital gains it would go up to either 10 percent or 20 percent, depending on your income level. And for dividends it would go from being taxed at this 15 percent rate, where it currently is, to being taxed as ordinary income.
So if you are a very high-income person, suddenly it could go from being taxed at 15 percent to being taxed at 39.6 percent.
MARTIN: So Professor Brown, let's turn to you. As you can hear from what Tamara just told us, the rates that capital gains and dividends are currently taxed is a lot lower than ordinary income. So why not let these tax rates expire? Why not raise these rates? What are the arguments?
BROWN: Well, when we talk about millionaires paying more, capital gains are found disproportionately in millionaire households. That said, we can talk about why you might have a different rate. One is we want to encourage risk-taking. And when you invest in the stock market, it is a risk. You could actually lose all of your money.
You could also make a lot of money, see, e.g., Warren Buffett and others. So one reason for the rate differential is the risk. We want to reward that. Another one is that part of the gain when you sell stock isn't just because the company has done better. It's done better - well, it's not necessarily done better, but there could be a part allocable to inflation, and it isn't fair to tax you at a higher rate because inflation is the reason for the additional income that's earned. So...
MARTIN: So tell us why you think it's OK to let these rates rise and why you think in fact in your opinion you think it's absolutely the right thing to do.
BROWN: OK, well, it's the reason or the primary reason why Warren Buffett pays less in taxes than his secretary. It is because the lion's share of his income and the lion's share of millionaires' income comes from dividends and capital gains that are taxed at a 15-percent rate, whereas wage earners are taxed at 35 percent currently, and it could be as high as 39.6 percent beginning January 1 of next year.
So I say right now there's discrimination against labor, against wage earners in the code because there's this preferential low rate given to capital gains.
MARTIN: If you're just joining us, you're listening to TELL ME MORE from NPR News. I'm Michel Martin. And we're looking at how taxes on capital gains and dividends could change with Emory law professor Dorothy Brown, that's who was speaking just now, and NPR congressional reporter Tamara Keith.
Now Tamara, you might think that the politics of this would be easy because you're talking about, as Professor Brown said, a relatively small group of people relative to the total population. But it has not been that way. Why is that?
KEITH: Now that's a good question. You know, one idea, and this is just spit-balling here, is that actually members of Congress own a lot of stock, have a lot of investments. And so it's part of this Washington bubble phenomena, where people in Congress don't have a sense of what mainstream America is going through or where they get their money from.
Another thing is that there is a very vocal constituency arguing that these rates should stay where they are. Included in that is the business community, which has a very loud voice.
MARTIN: I'd like to ask you, Professor Brown, you wanted to answer this question of why do you think the debate over this is so difficult. Is it that - do most people feel that they have some investment in capital gains and dividends, and it would affect them, even if it wouldn't affect them directly in the near term? What do you think?
BROWN: Great question. I think - half of Americans own stock, but they own it in their retirement accounts, which are not eligible for the 15-percent rate. So when people hear oh, we're going to increase the gain on - the tax treatment on stocks, they think oh no, this is going to hurt me. It really isn't because you're not benefitting from the low rate if you have it in your pension accounts.
I wanted to go back to something Tamara said. Members of Congress are not required to release their tax returns. I made the argument in a Bloomberg View op-ed that they should be, that in fact when I did a back-of-the-envelope calculation, about nine in 10 senators own stock in a way making them eligible for the 15-percent rate. Compare that with less than one in five Americans.
So I think the first step to tax reform, whether it's taxing wages at the same rate as capital gains, is letting us look at members of Congress' tax returns because I think we'd see that they really are not like the typical Americans' tax returns.
MARTIN: Tamara?
KEITH: And we get sort of a window to that by look at their annual financial disclosures, where they have to report their assets, but it's in a big range, and you just don't really get as complete a sense.
MARTIN: Where is this debate going? Do you find that there seems to be more interest in addressing this issue given the big package of discussions that's going on? I know it's hard to see from the outside just because these discussions are taking place behind closed doors.
KEITH: Well, and this is one of those things that is not as high-profile as many of the other issues that are being discussed. I mean, top tax rates, that's the big, sexy item that everybody is paying attention to, the income tax rate. This is something that doesn't get as much attention.
I will say that given that both Republicans in Congress and the president want to extend these preferential rates for virtually everyone, most of our listeners will most likely be just fine after the new year if either the president or Republicans in Congress get their way.
If the president gets his way, people at the very high level, people earning more than $250,000 a year, could see these rates rise. But generally speaking, unless we go over the cliff, most people are not going to see any change.
MARTIN: Tamara Keith covers Congress for NPR. She was here with me in our Washington, D.C., studios. Emory law professor Dorothy Brown was with us from Martha's Vineyard, Massachusetts. Thank you both so much for speaking with us.
KEITH: Thank you.
BROWN: Thank you.
Copyright © 2012 National Public Radio. All rights reserved. No quotes from the materials contained herein may be used in any media without attribution to National Public Radio. This transcript is provided for personal, noncommercial use only, pursuant to our Terms of Use. Any other use requires NPR's prior permission. Visit our permissions page for further information.NPR transcripts are created on a rush deadline by a contractor for NPR, and accuracy and availability may vary. This text may not be in its final form and may be updated or revised in the future. Please be aware that the authoritative record of NPR's programming is the audio.How The Rich Feel About Paying More Taxes
How much income tax should the top 2 percent of U.S. earners pay? Just about everyone has an opinion, but the opinions that count are those of President Obama and House Speaker John Boehner.
iStockphoto.comStephen Prince has plenty of money, and he doesn't mind sending more of it to the federal government.
"There's nothing in history that supports the view that if you give the wealthy their money back, they'll invest it," says Prince, who owns a company based in Nolensville, Tenn., that makes gift cards. "We invest anyway — that's what the wealthy do."
President Obama has made it clear he will demand that taxes go up for the top 2 percent of earners as part of any new budget deal. Presidential statements, congressional debate and protests on Wall Street and around the country have all made the case that the rich must pay more in order to help both the budget and the economy.
But how do the top earners themselves feel about that idea?
Stephen Prince of Tennessee says the conditions that create wealth are at risk if the rich are too "greedy" to pay more in taxes.
Courtesy of Stephen Prince
Stephen Prince of Tennessee says the conditions that create wealth are at risk if the rich are too "greedy" to pay more in taxes.Courtesy of Stephen Prince Some, like Prince, say they can readily afford to pay more. Others think it's wrong to call on them to pay higher rates — even as top earners account for a huge percentage of personal income tax receipts. Mainly, they say they are tired of being singled out and accused of not paying their fair share.
"I worked hard and I had some success, and I think that's how it's supposed to be in this country," says Edward Kfoury, a 74-year-old former IBM director who now owns "a couple of businesses" in Maine. "I don't like being called a name and being called a bastard and all these other things."
Jeffrey Fisher of Florida says any tax increase ought to be accompanied by cuts to government programs.
Robert J Nelson/Courtesy of Jeffrey Fisher
Jeffrey Fisher of Florida says any tax increase ought to be accompanied by cuts to government programs.Robert J Nelson/Courtesy of Jeffrey Fisher 'A Dark Path'
Prince, who is 61, lives in a gated golf community near Nashville, Tenn., and owns a condo in New York. Not only can he afford to pay more, he says, but he also believes people in his bracket need to pony up to support essential programs such as education and roads.
"Almost all of my friends don't have one mansion, they have two," he says. "Many of them have three."
He recently joined a group of 225 self-styled "Patriotic Millionaires," which advocates that high-income individuals pay higher taxes.
"Without willingness to support our central government, we're going down a dark path," Prince says. The conditions that create wealth — including an educated workforce and a broad customer base — are at risk if the rich are too "greedy" to pay more in taxes, he argues.
How Much Is Enough?
Not everyone whose taxes would go up under President Obama's "fiscal cliff" proposal lives in a mansion, however. Particularly in expensive parts of the country such as New York City and San Francisco, $250,000 doesn't go as far as it once did.
"My wife and I collectively make over that," says Bernie Grimm, an attorney in Washington, D.C., "but with three kids and two in college, that's not a lot of money."
As New York City Mayor Michael Bloomberg once pointed out, life in such places is itself a "luxury product." Grimm, who is 57, readily concedes that his family is able to live comfortably.
People who aren't able to make ends meet on a medium six-figure income are arguably just not being smart with their money.
"There are a lot of people in my income category who are living paycheck to paycheck," says Mark Anderson, a 29-year-old mortgage broker in St. Louis. "It's just a different level of credit card debt."
Mark Anderson of St. Louis thinks President Obama and other Democrats make being rich "sound like a bad thing," something he says is a mistake.
Alan Greenblatt/NPR
Mark Anderson of St. Louis thinks President Obama and other Democrats make being rich "sound like a bad thing," something he says is a mistake.Alan Greenblatt/NPR Anderson says he and his wife, a pathologist, fall into the 2 percent category but not by much. He indulges himself in "the latest and greatest that Apple has to offer" and lives in a sizable house in a good neighborhood. Beyond that, he says, he and his wife aren't extravagant — they drive Subarus rather than Jaguars.
Singling Out Success
Anderson recognizes that the kind of tax increases Obama proposes aren't going to impinge on his life materially, and he supports them philosophically. But he adds that he thinks Obama and other Democrats make being rich "sound like a bad thing," which he says is a mistake.
The top 2 percent of earners already pay 35 percent of all federal taxes, according to the Tax Policy Center. In terms of personal income taxes, the top 1 percent alone pay 37.4 percent of total receipts, according to the Tax Foundation — double the share they paid back in 1979. Kfoury, who is president of a land trust in Maine, points out that there are years when his personal tax bill has run into seven figures.
"What would make me feel a lot better is if I heard the president say, 'I want to thank the rich people who, because of our progressive tax system, pay the most — but we don't have enough money, so we're asking the wealthy people to help the country out by paying more than their fair share,' " says Martin Krall, a 71-year-old "semi-retired" attorney and media executive who lives in Palm Beach Gardens, Fla.
"Instead, you're made to feel like you're a bad guy," Krall says. "People resent the notion that somehow they've done something wrong by becoming successful."
Get Your Fiscal House In Order
Even Prince, the Tennessee millionaire, says the president "has done a horrible job of telling the story or recrafting the message."
But for some of the well-to-do, it's not just a question of being asked nicely. Some argue that the federal government itself should get its books in better order before it comes asking them for more.
"If you have tax increases and parallel cost-cutting, that's fine with me," says Grimm, the D.C. lawyer.
Grimm says he has always endorsed social programs, worked in a public defender's office and once set up a reading program at a local jail. But he believes there's plenty of waste in government — including domestic programs he worries are leaving some individuals dependent on government largesse.
Jeff Fisher, another 57-year-old lawyer, agrees that any increase in taxes for people in his income category must be accompanied by cuts to government programs. "It's got to be the two together," he says.
But if he has to pay higher taxes in order to help bring the federal budget closer to balance, Fisher recognizes that he can afford it.
"Yeah, it's going to cost me a bunch of money each year, but it's not going to make a material change in my life," Fisher says. "I'm a divorce lawyer in Palm Beach, Fla., so I do very well."
Sign Of The Times: Labor Strikes May Make Comeback
An earlier version of this story stated that thousands of Wal-Mart employees took part in the Black Friday protests. Wal-Mart says 100 workers participated, while one of the protest organizers, OUR Walmart, says 500 workers and thousands of activists were involved.
An empty container ship waited near the Port of Los Angeles during the eight-day strike by members of the International Longshore and Warehouse Union. The stoppage put a halt to most of the work at the Los Angeles and Long Beach ports.
Kevork Djansezian/Getty ImagesWhen clerical workers at the ports of Los Angeles and Long Beach reached an impasse in talks with management over job security last week, they took what has become something of a rare step: They went on strike.
Once a mainstay of the labor arsenal, strikes have largely fallen off since the early 1980s. So a recent spate of high-profile work stoppages, including by Chicago teachers, nonunionized Wal-Mart workers and New York City fast-food employees, has some experts wondering if we're seeing a resurgence of the tactic.
Thomas Kochan, co-director of the Sloan Institute for Work and Employment Research at the Massachusetts Institute of Technology, thinks years of pent-up frustration over stagnant wages and diminishing benefits has finally hit the boiling point.
Work stoppages have fallen off precipitously since the early 1980s, according to data from the Department of Labor's Bureau of Labor Statistics.Number of work stoppages involving 1,000 or more employees, 1961-2011
Number (in thousands) of workers involved in those stoppages.
"If you look at the national data, you see a decline in job satisfaction and you see tremendous frustration, particularly among younger workers who recognize they can't get the kinds of jobs they've been educated for, that they can't support their families or earn the kinds of incomes that their parents earned at comparable stages in life," he says.
It's been years in the making and long held in check by higher unemployment, but "you're going to see more of those pressures explode in different ways because the economy is getting better, but people don't necessarily feel it," Kochan says.
Labor lawyer and author Thomas Geoghegan agrees things may have reached a tipping point. He credits the Occupy Wall Street movement with reminding labor "that getting out in the streets and making a loud noise is an option."
"There are people who aren't ready to strike now, but they are paying close attention to see if this sort of thing works," he says. "If it does, you're going to see more of it."
Case in point: the Black Friday protests at Wal-Mart, which is known for its strong opposition to labor. Scores of employees at stores across the country, joined by an even greater number of activists, staged a one-day walkout on the big shopping day after Thanksgiving over what they see as low pay, lack of benefits and heavy-handed corporate tactics to prevent them from organizing. The retailer tried to prevent the union-backed demonstrations but failed.
The Wal-Mart protests were an inspiration to many who manned the picket lines in Los Angeles and Long Beach, says Craig Merrilees, a spokesman for the International Longshore and Warehouse Union, the union that represents the striking port workers.
"It got so much media coverage and involved such a high-profile employer that it's hard to ignore them," he says.
But with U.S. unemployment at 7.7 percent and concerns about corporate outsourcing — not to mention Wisconsin's move against collective bargaining for most public employees, and Michigan lawmakers passing "right to work" legislation that would make paying union dues voluntary — is now the time for workers to walk off the job?
Chris Edwards, the director of tax policy studies at the libertarian-leaning Cato Institute, says no.
The hypercompetitive economy makes it nearly impossible in the long run to squeeze employers, he says, adding, "If you raise worker pay, it's just going to mean fewer jobs and benefits and more automation down the road."
Over the same period, corporate profits have mostly risen even as inflation-adjusted wages have remained stagnant, according to Thomas Kochan of MIT's Sloan Institute for Work and Employment Research.Corporate profits after taxes and employee compensation, 1961-2012
And Edwards notes that even a handful of workers can wreak havoc: "It was a small group of clerical workers at the port of Los Angeles that cost billions of dollars in trade disruption."
MIT's Kochan acknowledges that to strike is always a dangerous gamble. "That's nothing new," he says, "but the fact that there are fewer jobs out there makes it more risky, to be sure."
He cites a weakening of penalties and enforcement mechanisms that protect workers since the 1980s as a primary reason why strikes and other labor actions are more perilous now than in the past.
It's a theme echoed by the chief of staff at the country's largest labor organization. Jon Hiatt of the AFL-CIO says President Reagan's firing of 13,000 strikers belonging to the Professional Air Traffic Controllers Organization in 1981 was a watershed event in labor relations. The air-traffic controllers were in violation of federal law that banned strikes by government workers.
"I think PATCO was certainly an important event because it represented the de-stigmatization of anti-union activity in a really extreme way," Hiatt says.
What followed was an erosion of labor protections during the Reagan administration. At the same time, there was an enormous outsourcing of jobs and technological advances that "changed the whole nature of the workplace and made strikes a less effective tool," he says.
But Hiatt feels a change in the winds.
"There are more and more signs of workers looking for some sort of coming together to improve conditions," he says. "Even a few months ago, the notion that we would see [labor protests] in 100 Wal-Mart stores on a given day was hard to imagine."
'Tis The Season To Avoid Charity Scams
It's the season of giving, especially when it comes to end-of-year charitable donations. But how do you know that your money is getting into the right hands? Host Michel Martin gets some useful tips on vetting charities from Ken Berger, president and CEO of Charity Navigator.
Copyright © 2012 National Public Radio. For personal, noncommercial use only. See Terms of Use. For other uses, prior permission required.MICHEL MARTIN, HOST:
I'm Michel Martin, and this is TELL ME MORE, from NPR News. Later in the program, you might think of apprenticeships as something out of the era of blacksmithing and barrel-making, but our next guest says it's time for this type of employment to make a comeback.
But first, to matters of personal finance. It's the season of giving, and not just of presents. A lot of people take this time to make last-minute charitable contributions, and if you do, chances are you'd like to make sure that donation is going for whatever purpose you actually intend, as opposed to, say, paying for somebody's offshore swimming pool.
So how do you go about figuring out which charity should be on your naughty list and which should be on your nice list? Here's where Ken Berger comes in. He is president and CEO of Charity Navigator. That's a nonprofit that rates U.S. charities, and he's with us now.
Welcome. Thanks so much for joining us, and Happy Holidays.
KEN BERGER: Thank you, and Happy Holidays to you.
MARTIN: You're already telling us that people will have noticed that there's a big increase in fundraising appeals this time of year. Why is that?
BERGER: Well, because for some charities, as much as half or more of their funding occurs during this time of year. So there's a tremendous spike in charitable giving, and so many charities are trying to get access to that kind of funding.
MARTIN: Why is that?
BERGER: It's the holiday season, and it is a traditional time for people to give. It is the end of the year, and 10 to 20 percent of all charitable gifts occur during the last 48 hours of the year.
MARTIN: So people are doing their last minute tax-planning, and charities know that. And so this is an obvious time to sort of take advantage of the mindset that people are in, anyway. Are there obvious red flags that people should look for at this time of year when they're getting all these fundraising appeals?
BERGER: When there are billions of dollars involved, there is the good, the bad and the ugly. So some of the things that people need to watch out for are charities with sound-alike names that really may not be charities at all, or have very poor management. Telemarketers - so getting phone calls at this time of year. There's been a real uptick in awareness and investigations of abuse of phone solicitations. In some cases, 100 percent of the donation is going to telemarketers.
MARTIN: But what about a charity that you might have an existing relationship with? Do they not engage in this kind of fundraising, as well, or...
BERGER: Well, you know, that's part of the problem. There are some great charities out there that may use this practice, but the problem is it's such a Wild West out there. There's so much abuse that's going on, and unless you really know about the organization personally, the risk is very high. It could be that your donation doesn't go where you want it to. So that's the risk.
You know, if you personally know the charity, that's a different matter. But even then, you might want to inquire with them, hey, how much of this money is actually getting to you and how much is the markup of the telemarketers? They can charge a tremendous amount, even for a charity that you like.
We evaluate 6,000 charities. They get roughly half of all individual contributions made in the United States. Even though there's a million-plus charities, there's the 1 percent of charities in the United States that get about 86 percent of all the donations.
So, if you look up the charity on our website and it's not rated, it means it's either in the queue to be rated, or it doesn't meet our criteria, or it might not be a 501(c)(3). There are 24 different kinds of nonprofits. We have a tool on our website that says here's how you can evaluate the charity in a similar way to the way that we do if we don't currently rate it. We're also going to be asking people to let us know which charities they want us to rate next, because we're expanding to 10,000 in the next couple years.
MARTIN: Are there some core principles that you think people should try to employ when they're figuring out to whom to give?
BERGER: Yes. We have three pillars that we think that people need to look at to be a wise charitable giver or, better still, a social investor. First is the finances of the organization, something that Charity Navigator has looked at from the beginning of our 10-year history. Because if you don't have an organization that's well-managed financially, that's sustainable and that puts the money where it's supposed to go, you're going to have problems.
Second is what we call accountability and transparency, and it really revolves around the governance and the ethics - ethical practices of the organization. It's critically important to have those things in place. We see a lot of abuse where the CEO's buddies are on the board. There's a couple of people. They don't have the skills, the independence that are required.
And then the third, what we sometimes call the Holy Grail, which is about the results of the work. It's been called outcomes, impact. And that is, unfortunately, one of the most challenging things to find, but it's, of course, critical, because that's why the charities exist. And where it stands today on that one, you probably have to call the charity, because it may not even be on their website to try to discern that. And it's more than counting heads. So a simple case, an employment program, you don't want to just know how many people went through the employment program. You want meaningful change to be evident. So that means the results of how many of them are gainfully employed a year out, and happily so, without being dependent on entitlements. Those would be the kind of measures you'd want to look for to know that the results are meaningful.
MARTIN: Well, but isn't there a lot of point of view, though, in the measures that you're using there?
BERGER: Yes.
MARTIN: I mean, for you to sort of say, well, here out, you shouldn't be using any entitlement program. I mean, who says?
BERGER: Yeah. Absolutely. And I think that part of this, the way it stands today, is dependent upon the expectations of the donor, of what they're looking for and what the program's specific mission is. You're absolutely right, that there can be cases where a person is doing very well relative from where they began, and that they may still need certain support. So I'm just giving a simple example. You're absolutely correct. It varies, and there is complexity to it.
But I think that basic common sense and what the organization indicates that it's planning to do, evidence that it's doing that more than storytelling is what we're talking about. You know, storytelling is very powerful and relevant, but without data that shows that that kind of story is happening every day on a scale is where you lose things, because a lot of charities, unfortunately, do not yet take the next step.
MARTIN: You know, you mentioned that this is a time of year when a lot of people are motivated to give because of their own kind of spiritual practice or feeling, and there have also been a number of tragic situations that are probably prompting people to give. I'm thinking about, like, Hurricane Sandy, for example, which is still - recovering from that is still a problem for many people.
Oftentimes, you are at the grocery store, for example, and you'll see something right at the checkout saying just, you know, throw some change into this jar or - and you think to yourself, oh, yeah. It's just the change in my hand. So what's the big deal? Do you have thoughts about that? I mean, do you think that that kind of impromptu giving, sort of throwing into the jar, what's your thought about that?
BERGER: Unfortunately, it's basically a crapshoot. Again, it gets back to this whole issue of heart and head, and the heart leads most charitable giving in the United States, which is appropriate, but the problem is that the head and looking for objective information doesn't often follow. There's an assumption that all charities are created equal, or at least mine are. And so it's really important, we think, to not just give impulsively, but to do a little research to minimize the risk that the donation is not going to be used as effectively as you hope.
So we would recommend against just throwing that money into the bucket, but rather taking a little bit of time to do a little investigating to make sure that, indeed, it's really meeting the mission and the purpose that you want.
MARTIN: Ken Berger is president and CEO of Charity Navigator. That's a nonprofit that evaluates charities to see whether they are efficient, ethical and effective. He was kind enough to join us from NPR's bureau in New York.
Ken Berger, thanks for joining us.
BERGER: Thank you.
Copyright © 2012 National Public Radio. All rights reserved. No quotes from the materials contained herein may be used in any media without attribution to National Public Radio. This transcript is provided for personal, noncommercial use only, pursuant to our Terms of Use. Any other use requires NPR's prior permission. Visit our permissions page for further information.NPR transcripts are created on a rush deadline by a contractor for NPR, and accuracy and availability may vary. This text may not be in its final form and may be updated or revised in the future. Please be aware that the authoritative record of NPR's programming is the audio.Day 8 Of 12 Days Of Tax Deductions
Morning Edition continues with its 12 Days of Tax Deductions series which focuses on individual tax deductions, credits and other breaks in the tax code. Steve Inskeep and David Greene report on the state and local income tax deduction - or sales tax deduction for states with no income tax.
Copyright © 2012 National Public Radio. For personal, noncommercial use only. See Terms of Use. For other uses, prior permission required.DAVID GREENE, HOST:
Now, as we reach the peak of the holidays, let us not forget one of the most significant days of all - New Year's Eve. It's also the end of the tax year.
STEVE INSKEEP, HOST:
Many rules are set to expire and other may change as Congress and the president negotiate over tax laws, which is why we are explaining what the rules are in our 12 Days of Tax Deductions.
(SOUNDBITE OF SONG, "12 DAYS OF CHRISTMAS")
INSKEEP: Today's tax break is a big one, the state and local income tax deduction.
GREENE: And here's how it works. You pay state and local taxes and then when it's time to fill out your federal income tax form, you're allowed to take the state and local taxes as a deduction.
INSKEEP: OK, so, wait, wait, wait. It's a tax deduction for paying taxes?
GREENE: That's a good way to put it. It keeps you from paying taxes twice on the same income.
INSKEEP: You don't have to pay taxes on your taxes.
GREENE: Right, and we talked about this very thing with Barbara Weltman, who is an editor of the book, "Your Income Tax 2013".
BARBARA WELTMAN: The whole concept goes back to the balance between the federal government and the state.
GREENE: This deduction has actually been around for a century, as long as the federal income tax itself.
INSKEEP: And granting that deduction now costs the federal government about 70 billion dollars per year in lost revenue, at a time when tax loopholes are under scrutiny.
GREENE: Getting rid of this deduction would be tough though because it amounts to a subsidy from the feds to the states. Economist Martin Sullivan says it's easier for the states to tax you when they know that you can write it off on the federal level.
MARTIN SULLIVAN: If you took that away, the cost of state and local taxes would be much higher. With all the pressure on state governments now, where they're trying to raise taxes and the political pressure to reduce them, there would be even more political pressure.
GREENE: Many people benefit from this nuance of the tax code and would fight to preserve it.
INSKEEP: And that's the latest of our 12 Days of Deductions.
(SOUNDBITE OF SONG, "HAVE YOURSELF A MERRY LITTLE CHRISTMAS")
INSKEEP: It's the business news on MORNING EDITION from NPR News. I'm Steve Inskeep.
GREENE: And I'm David Greene.
Copyright © 2012 National Public Radio. All rights reserved. No quotes from the materials contained herein may be used in any media without attribution to National Public Radio. This transcript is provided for personal, noncommercial use only, pursuant to our Terms of Use. Any other use requires NPR's prior permission. Visit our permissions page for further information.NPR transcripts are created on a rush deadline by a contractor for NPR, and accuracy and availability may vary. This text may not be in its final form and may be updated or revised in the future. Please be aware that the authoritative record of NPR's programming is the audio.Everyone Chip In, Please: Crowdfunding Sandy
Jenny Adams in the Wayland Bar in Alphabet City, where she stored piles of relief supplies to distribute. Adams raised $10,000 through a crowdfunding website to help her neighbors affected by Hurricane Sandy.
Alex Goldmark/NPR
Jenny Adams in the Wayland Bar in Alphabet City, where she stored piles of relief supplies to distribute. Adams raised $10,000 through a crowdfunding website to help her neighbors affected by Hurricane Sandy.Alex Goldmark/NPR Big-hearted Americans always rush to give money after a disaster. Just how much and how fast is often determined by technology. After the earthquake in Haiti, texting small donations, for example, became a new standard practice.
This time around, Hurricane Sandy has shown crowdfunding websites are a simple tool for quick-response giving. Anyone can go on these sites and ask for money to rebuild or to help their neighbors rebuild. Friends, family and strangers chip in.
"You can literally sign up, share your campaign on Facebook, Twitter, email, and begin accepting credit or debit card donations online in under a minute," says Brad Damphousse, the founder of the crowdfunding website GoFundMe.
That's what 32-year-old writer Jenny Adams did. It was simple: she added a gripping picture of a flooded street to her page, and asked for money that she could give out to her neighbors affected by Sandy in the Alphabet City neighborhood of Manhattan.
"There were certainly people who gave me a fair amount of money that I have never met and don't know," Adams says.
People usually use sites like GoFundMe to tactfully ask loved ones for help with medical bills or expensive life events, like buying an engagement ring. Spending disaster donations, however, is trickier than cutting one big check. Adams has no formal training in relief work, so it quickly became a thoughtful scramble to spend the money.
"People are like 'What? You're just going to give me $500?' And I'm like, 'Yeah, I'm just going to give you $500,' " she says.
Adams bought bundles of jackets, blankets and food at Kmart and Target, and offered them to neighbors in need.
She also handed out a lot of money. She gave $500 to a friend who owns a damaged bar. A $200 gift card went to the checkout lady at Kmart for her sister in N.J. And Adams recently offered a $1,000 check to the damaged Lower East Side Girls Club.
Adams relies on her judgment — she gives whatever seems like a good use of money. Ken Berger, on the other hand, prefers a more methodical and measured approach. He's the CEO of Charity Navigator, a giving watchdog group that recommends donating to known charities. He's a bit hard on crowdfunding.
"It's virtually impossible to measure these little efforts because they have no data, track record, filings of any kind," Berger says, "and so the ability to objectively assess them is near impossible."
He says you should donate only to people you know and trust. Jennifer Elwood, executive director of consumer marketing at the American Red Cross, agrees with that line of thought and says everyone should help, even if that means not giving to formal charities like the Red Cross.
"It's really up to everyone who wants to help in their own individual way," she says. "Whether that's through us, or through another organization, or an individual in their community, we're absolutely supportive of that."
The Red Cross is embracing crowdfunding with Sandy campaigns of its own on two different websites, IndieGoGo and CrowdRise. Each site is pulling in more than $1 million, which is a pittance compared to the $170 million in total donations to the charity. The organization says it will have more than half of it left for long-term Sandy rebuilding.
Elwood says the Red Cross has the resources to stick around and continue donating. Solo fundraisers like Jenny Adams, however, tend to run on shorter fuel.
"I think if we had a hurricane again tomorrow, though, I might take a break," Adams says with a laugh.
'Paris Hilton Tax' Vs. 'Death Tax': A Lesser-Known Fiscal Debate
Ben Franklin famously observed that nothing is certain but death and taxes.
So far, Congress hasn't repealed the former, but the future of estate taxes — a largely overlooked piece of the "fiscal cliff" — remains uncertain as this year draws to a close.
Until now, most of the year-end tax debate has focused on the income tax, but another battle could be brewing over estate taxes.
Economist Jared Bernstein of the Center on Budget and Policy Priorities says if the estate tax fight has been overshadowed so far, there's good reason: Almost nobody pays it. "Everybody dies, but just the richest 2 in 1,000 estates would be hit by the estate tax right now," he explains.
Current: 35 percent on estates worth more than $5 million
Obama proposal: 45 percent on estates worth more than $3.5 million
If no action by 2013: 55 percent on estates worth more than $1 million
In 2012, only estates worth more than $5 million owe any tax. President Obama wants to lower the threshold to $3.5 million and raise the estate tax rate from 35 percent to 45 percent.
Even with those changes, Bernstein says, the vast majority of people would be still be exempt.
"You'd go from 2 in 1,000 of the wealthiest estates to 3 in 1,000 of the wealthiest estates," he says. "So you're really talking about a very rarefied atmosphere up there at the tippy top of the wealth distribution."
There's a lot of money at stake, though. The president's plan would bring in an extra $120 billion over the next decade. Obama would seem to be in a strong bargaining position because if no deal with Congress is struck, the tax goes up even more sharply — to 55 percent — and it would be applied to estates worth as little as $1 million.
While the president's plan seems moderate by comparison, he faces some pushback from members of his own party. Democratic senators like Max Baucus of Montana, Mary Landrieu of Louisiana and Mark Pryor of Arkansas have all come out against any increase in the estate tax.
Pryor says he's trying to protect those whose wealth puts them just over the threshold.
"Most of the superwealthy, they're going to set up foundations and they're going to do all these other things. They're probably not going to pay much estate tax anyway, to be honest with you," he says. "This is really for people who own small and midsized businesses."
Opponents of the estate tax often point to sympathetic family farmers who could be affected. Pat Wolff of the American Farm Bureau Federation says it's not unusual for farmers and ranchers to have 80 percent of their wealth tied up in land.
"A farmer may look like he's worth a lot of money on paper, but really his assets are illiquid. They are land," Wolff says. "So when the estate tax comes due, a farmer could have to sell off a piece of his business to come up with the cash to pay the estate tax."
Advocates for the estate tax scoff at that, noting that farmers represent a very small fraction of those affected by the levy. They add there are provisions in the law that allow farm families to pay in installments, so they don't have to sell off their land.
Economist Bernstein says at a time when the government is looking for additional revenue to help cut the deficit, the estate tax is a reasonable place to turn.
"People call it the 'Paris Hilton tax' for a reason," he says. "We live in an economy now where 40 percent of the nation's wealth accumulates to the top 1 percent. And when these folks leave bequests to their heirs, we're talking about bequests in the tens of millions."
If supporters call the estate tax the "Paris Hilton tax," opponents brand it the "death tax."
Pryor says opponents have done a good job of getting their message across.
"I've been in Little Rock, and I've had a waitress come up to me and say, 'Whatever you do, get rid of the death tax.' Well, there's virtually no chance that she would ever have to pay it," he says. "But nonetheless, in hearing the discussion on the radio and watching the talking heads on TV, she's convinced that everybody when they die, they have to pay some sort of tax. And that's just not true."
But while most Americans can afford to ignore the estate tax debate, those few at the top will have to keep wondering who pays and how much.
'Fiscal Cliff' Interferes With Year-End Tax Plans
David Greene talks to tax expert Mary Beth Franklin about year-end tax moves to benefit your personal balance sheet. Franklin is a tax planner and contributing editor to Investment News.
Copyright © 2012 National Public Radio. For personal, noncommercial use only. See Terms of Use. For other uses, prior permission required.DAVID GREENE, HOST:
As we head towards the end of the year, there might be some important financial moves you could make before December 31st so that you don't have regrets come tax time next spring. Year end tax planning is particularly tricky because of all the potential changes that might happen as a result of negotiations in Washington.
For some guidance, we called tax planner Mary Beth Franklin. She is a contributing editor to Investment News, and she joined us here in our studio in Washington.
Mary Beth, thanks for coming in.
MARY BETH FRANKLIN: Thank you for inviting me.
GREENE: One thing we seem to know almost for sure is that we'll be all paying higher taxes because of what's happened to the payroll tax holiday. What does this mean?
FRANKLIN: I believe that the payroll tax holiday, which is the two percent of the FICA taxes that employees pay in their paycheck, that was reduced over the last two years. It used to be 6.2 percent, currently its 4.2. I think that's going to go away. The bottom line, that means if you're earning about $50,000 a year, your paycheck is going to go down by about $20 a week next year. If you're earning $100,000, it's going to go down by about 40.
GREENE: And you're saying that no matter what happens, even if there's a deal on the so-called fiscal cliff, you're expecting that that's going to happen, we're all going to be paying slightly higher and feeling the weight.
FRANKLIN: I believe so, because part of the problem is Social Security is supposed to be self-funding program. Due to this reduced payroll tax Social Security is not actually adding to the budget and that makes the defenders of Social Security very uncomfortable. So I think a lot of people would like it just to go back to the normal tax rate of 6.2 percent for most workers.
GREENE: OK, so everyone should be adjusting their budgets to get ready for next year to be getting slightly less in their paycheck?
FRANKLIN: Exactly.
GREENE: We hear so much in Washington right now, President Obama talks about wanting to raise the tax rate for the wealthiest Americans. Talk about people what people who are in those upper income brackets should be getting ready for, and if there's something they could be doing before December 31st that might make things better.
FRANKLIN: For the upper income people it's basically turning normal year end tax planning on its head. Usually what you say is you want to defer your income, if possible, till next year - things like bonuses - so you don't have to pay taxes on it this year, and you want to accelerate your deductions, for example, contributions to charity, to reduce your income so you'll reduce your taxes. This year, we know what their tax rates are going to be for 2012. We really don't know what their tax rates are going to be for 2013. So some very conservative tax advisors are saying hey, go with the devil you know. As much income into this year, pay taxes on it for 2012, because we know what the rates will be, and maybe you want to defer some of those traditional deductions, like big contributions to charity, till 2013. Because if your tax rates go up a deduction is going to be more valuable to you next year then it will be next year.
GREENE: OK then, let's talk about some of the things that everyone else in the other tax brackets should be thinking about...
FRANKLIN: For the rest of us...
GREENE: For the rest of us.
FRANKLIN: ...great unwashed.
(LAUGHTER)
GREENE: What should everyone else be thinking about as we come to the New Year?
FRANKLIN: Well, for the average wage slaves, like you and I, we don't have a lot of wiggle room of how to move money around and how to affect our taxes. But there are some things you can do.
GREENE: OK.
FRANKLIN: I would start with if you have an employer provided retirement plan at work, like a 401(k) or a 403(b), you still have a few weeks left in the year. Make sure you have put as much contribution in that retirement plan as possible. It will reduce the amount of your income that is subject to tax. But the flipside of that is sometimes people don't have enough taxes withheld from heir paycheck and they get to the spring when they're filing their taxes, and not only do they have to pay extra, sometimes they have to pay a penalty. If you have this sneaking feeling that you're going to owe taxes next year, you can ask your employer to take a little more payroll tax withholding out of your paycheck for December to avoid that tax penalty next year.
GREENE: Mary Beth Franklin, contributing editor to Investment News, thanks so much for coming in.
FRANKLIN: Thank you very much and Happy New Year.
Copyright © 2012 National Public Radio. All rights reserved. No quotes from the materials contained herein may be used in any media without attribution to National Public Radio. This transcript is provided for personal, noncommercial use only, pursuant to our Terms of Use. Any other use requires NPR's prior permission. Visit our permissions page for further information.NPR transcripts are created on a rush deadline by a contractor for NPR, and accuracy and availability may vary. This text may not be in its final form and may be updated or revised in the future. Please be aware that the authoritative record of NPR's programming is the audio.Fiscal Cliff Leaves Accountants Hanging, Too
With major tax changes still undecided, accountants and other financial professionals must advise their clients on various possible scenarios.
iStockphoto.com
With major tax changes still undecided, accountants and other financial professionals must advise their clients on various possible scenarios.iStockphoto.com The expiration of Bush-era tax cuts. A patch to the alternative minimum tax. An increase in capital gains taxes.
As the "fiscal cliff" approaches, all of these are possible, but none certain. That uncertainty solicits many questions from anxious taxpayers. But, for accountants and financial planners, there are a few definitive answers.
Financial professionals who spoke with NPR say they are not strangers to uncertainty. When the Bush tax cuts were up for expiration two years ago, for instance, the feeling was similar.
"Every time there's a significant change in tax law, you have to retool and learn things," says Mark Burger, a CPA in Palm Beach Gardens, Fla.
But the fiscal cliff, with its host of associated changes, presents a challenge unlike anything the pros have dealt with in the past.
"The difference this year is the volume and the unprecedented amount of issues coming at the same time," says Ed Karl, vice president of taxation of the American Institute of Certified Public Accountants.
Clients, they say, crave certainty. Although they can't provide that, professionals say, they can be honest about what they don't know, and help their clients prepare for possible futures.
"Our job is to make clients aware of these issues and be in a position to act when these rules become final," says Daniel Joss, a financial planner in Reston, Va.
One thing they can do, Karl says, is to work with clients on scenario planning.
"In other words, 'Let's talk about your situation. If this happens or doesn't happen politically, then we should do this, or I recommend you do this.' So when you get to [Dec. 21 or Dec. 22], which is when we're guessing there will be a clearer picture of what might happen, you'll be in a better position to make decisions from a planning perspective," Karl says.
For one, clients wonder whether they should they sell their assets before year end in anticipation of possible capital gains tax increases in 2013.
"It doesn't make sense if you weren't at all thinking of selling stocks or assets," Karl says. "But if you were thinking about selling it now or within the next couple of months you clearly need to do some serious thinking about accelerating the sale of that business or particular assets into this year."
Of course, accountants can't say for sure that the taxes will go up. But they might. So consider it, they say.
Uncertainty about tax rates, meanwhile, has effectively caused accountants to turn some traditional advice on its head.
"Normally at the end of the year you're thinking of deferring income to the next year and accelerating expenses into the current year. This year you're probably looking at the reverse of taking income earlier into this year where the rates and the preferential rates are almost certain to change next year," Karl says.
But not everything is up in the air.
After Jan. 1, for instance, the record-high exemption for estates and gifts is expected to drop to $1 million from $5.12 million. For people with lots of money to give, it may be time to make that transaction.
The Associated Press reports that financial advisers and trust and estate attorneys have been "flooded" with requests from those who wish to make financial gifts and create trusts. Joss, the financial planner, says he has handled such requests.
"We're saying to our wealthier clients, 'If you're planning to give more than a million dollars away to the next generation, you may want to do that this year instead of waiting to see what may happen next year. Not everyone can afford to give gifts, but with the top 1 percent, they'd much rather give this year when they're allowed to give more than next year," Joss says.
He says he's also helping clients avoid the 3.8 percent tax increase associated with the Affordable Care Act, also known as Obamacare, that takes effect in 2013. The increase will apply to investment income for single taxpayers with adjusted gross income above $200,000 or jointly filing married couples making more than $250,000. Taxpayers can avoid the tax by realizing taxable gains before the end of the year.
There's a similar sense of urgency for big charitable contributions, The Wall Street Journal reports. Fears of a threat to the charitable deduction have caused wealthy taxpayers to scramble to make donations before the end of the year.
But taxpayers aren't the only ones holding their breath. The IRS is already bracing itself for the worst.
In a letter to members of Congress, IRS Acting Commissioner Steven T. Miller said that the Internal Revenue Service annually conducts planning during the summer to prepare for the upcoming filing season, but that planning this year has been "particularly challenging" due to unresolved tax issues.
"When Congress takes action well after this planning process is under way, there is potential for substantial disruption to the filing season ahead," Miller wrote.
Expiration of the alternative minimum tax patch, for instance, would require systems changes that would require a significant amount of time. This could delay tax filing until March, and in turn, delay refunds.
A Good Jobs Report Might Be Bad For The Jobless
Judy Smith, of Dalton, Ga., looks over paperwork as she files for unemployment benefits in August after being laid off from a catering job. More than 2 million people who get extended benefits may lose them if Congress doesn't act soon.
David Goldman/AP
Judy Smith, of Dalton, Ga., looks over paperwork as she files for unemployment benefits in August after being laid off from a catering job. More than 2 million people who get extended benefits may lose them if Congress doesn't act soon.David Goldman/AP The Labor Department's glad tidings Friday about the uptick in job creation last month might morph into bad news next month for many of the long-term unemployed.
That's because the boost in November hiring, with employers adding 146,000 jobs, might make it more difficult for Democrats to argue in favor of having Congress renew the extension of benefits for people out of work more than six months.
As things stand, four in 10 Americans who receive unemployment insurance will lose their extended benefits if federal aid expires as scheduled on Dec. 29.
If that were to happen, "it would be devastating for these unemployed workers and their families; in many cases, this is the only income they have," says Judy Conti, a lobbyist with National Employment Law Project, a group that advocates for low-wage workers. "It's the middle of winter — when people need heat and food and shelter."
But conservatives now have a stronger argument to make when they say the job market is healthy enough to offer opportunities to those who have been out of work a long time. In November, the unemployment rate dropped two-tenths of a point to 7.7 percent, the lowest level in four years.
A Cutoff Looms
The future of unemployment benefits for the long-term unemployed is part of the ongoing budget negotiations in Congress. Lawmakers are trying to sort out a complicated cluster of tax-break expirations and automatic spending cuts. Collectively, those budget problems are commonly called the fiscal cliff.
One of the issues involved in the negotiations is the federal Emergency Unemployment Compensation program. Unless Congress reauthorizes it for 2013, more than 2 million long-term unemployed workers will be cut off from federal benefits.
In November, the number of people who have been looking for work for more than six months was little changed at 4.8 million, the Labor Department said.
Many economists say it's difficult to sort out exactly what the state of the job market was last month because of distortions caused by the hiring of election-related workers and Hurricane Sandy, the superstorm that knocked out power for millions of homes and businesses as it hit the Northeast in late October.
A Cloudy Outlook
Even with some distortions, the jobs report seemed encouraging. But no one doubts that the labor market's future remains dicey as long as the outcome of the fiscal-cliff negotiations remains uncertain.
Evidence of concerns about uncertainty showed up in the Wells Fargo/Gallup Small Business Index survey. The November survey, released Thursday, found that small-business owners plan to add fewer new jobs over the next 12 months than at any time since the depths of the 2008-2009 recession.
The survey's key finding was that "there is the potential for a serious decline in jobs early next year."
That's what has advocates for the unemployed worried. They want the extended benefits to keep coming in 2013 to give the job market more time to heal.
Sen. Richard Blumenthal, D-Conn., said Friday that in the aftermath of Hurricane Sandy, extended benefits are crucial for his region. "We just suffered a major catastrophe," he said in a phone interview. "The recovery will be a long slog, so there are people who will be unemployed for a long time."
As the budget negotiations continue, "I'm willing to go to the mat for this," Blumenthal said.
Usually, the responsibility for providing workers with unemployment benefits lies with the states. The typical program gives laid-off workers up to 26 weeks of financial support, replacing up to half of their previous weekly wages. For the most part, the states set the rules for providing help and carry the costs.
The total number of weeks of benefits available in any particular state depends on the unemployment rate and unemployment insurance laws in the state where the person worked. This map shows the maximum number of weeks of benefits currently available in each state.
Center on Budget and Policy Priorities
The total number of weeks of benefits available in any particular state depends on the unemployment rate and unemployment insurance laws in the state where the person worked. This map shows the maximum number of weeks of benefits currently available in each state.Center on Budget and Policy Priorities But when the Great Recession slammed into the job market, Congress agreed to provide additional federal funds to help states extend benefits, in some cases up to 99 weeks.
When the authorization for federal unemployment benefits was set to expire in February 2012, Congress renewed the program, saying the help was needed because the unemployment rate was still over 8 percent at the time. But that extension, part of the Middle Class Tax Relief and Job Creation Act of 2012, set into motion a phase-out timetable. Currently, the maximum length of benefits is 73 weeks in states where the jobless rate exceeds 9 percent.
As 2013 begins, the federal program will end, so jobless workers will have to go back to relying on their 26 weeks of state aid. People who already have exhausted that amount will suddenly stop getting checks.
Reducing The Deficit
Many Republicans want to stick to the fast-approaching expiration date, saying that would help reduce the budget deficit. The nonpartisan Congressional Budget Office confirms that "the expiration of those benefits will lower spending by $26 billion in fiscal year 2013."
Not only would ending the program reduce the budget deficit, but the change also would help the economy by spurring the long-term unemployed to search harder for new jobs, conservatives argue.
They say the labor market has improved since the 2009 depths of the recession when the unemployment rate hit 10 percent. And they note that jobs are in fact available for many workers willing to make necessary changes, such as moving, retraining or accepting lower wages.
"Unemployment insurance makes unemployment last longer," Casey Mulligan, a professor of economics at the University of Chicago, concluded in a written assessment of the impact of extended benefits.
Giving The Economy More Time To Recover
But other economists say the job market is still so bad that many people need much more than six months to find jobs. Moreover, the extended benefits help keep the economy from worsening by allowing jobless people to continue to spend money at grocery stores and gas stations, and to keep paying their rent or home mortgage. Having food, gasoline and a home with a working phone can make a job candidate more attractive to an employer.
Ending federal extended benefits would reduce economic growth by about $48 billion and trigger the loss of hundreds of thousands of jobs, according to the Economic Policy Institute, a liberal-leaning research group.
Democrats Dig In Their Heels On Entitlement Cuts
House Minority Leader Nancy Pelosi of California said Democrats aren't going to throw America's seniors over the fiscal cliff to give a tax cut to the wealthiest.
J. Scott Applewhite/AP
House Minority Leader Nancy Pelosi of California said Democrats aren't going to throw America's seniors over the fiscal cliff to give a tax cut to the wealthiest.J. Scott Applewhite/AP Congress has barely two weeks to agree on a deficit-cutting deal to keep the nation from going over the "fiscal cliff" in the new year. The problem is that right now there is no such deal to agree on.
Republicans reject the higher tax rates for top incomes that President Obama demands. And they also insist on more austere entitlement programs, which has Democrats digging in their heels.
House Speaker John Boehner of Ohio, the Republicans' lead negotiator with President Obama, has said it time and again: "Without spending cuts and entitlement reforms, it's going to be impossible to address our country's debt crisis."
On Wednesday, House Majority Leader Eric Cantor got even more specific.
"Any kind of agreement that we come to has to deal with the prime drivers of our deficit, which is the spending and particularly the health care entitlement programs," the Virginia Republican said.
But neither Boehner nor Cantor actually named those entitlement programs, much less any proposals on how to change them.
Dick Durbin of Illinois, the Senate's No. 2 Democrat, is not surprised.
"They want to change entitlements — that's part of the deal," he said. "We've said: Be specific. They don't want to talk about it, because the changes can be very controversial and some of them not too popular."
Democrats say the White House has assured them Social Security is not on the table in the deal-making to avoid the sweeping tax hikes and spending cuts that will be triggered at the end of the year. Medicare apparently is being discussed. And one idea Republicans have been pushing is raising the program's eligibility age above its current level of 65.
But just a couple of days ago, House Democratic leader Nancy Pelosi of California was saying: "Don't even think about raising the Medicare age."
Democrats, she said, were not about to throw America's seniors over the fiscal cliff to give a tax cut to the wealthiest.
"If you want the scalp of seniors before you will touch one hair on the head of the wealthiest people in our country, then what's the discussion about?" she said.
In a nationwide survey of 1,500 adults released this week, the Pew Research Center found wide agreement with the Democrats.
"We had 56 percent opposed to raising the eligibility age for Medicare or changing the retirement age for Social Security. We asked both separately and got the exact same answer to both questions," said Michael Dimock, one of that poll's authors. "These are unpopular ideas, particularly for people who are under age 65."
Another idea Republicans have proposed is making the formula used for cost-of-living adjustments to entitlement programs less generous. It's something known as "chained CPI" — referring to the consumer price index. Vermont Rep. Peter Welch, a Democrat, says it would be a bitter pill to swallow.
"Chained CPI's tough; it is a cut," he said. "The president's negotiating that. So there's not enthusiasm on the Democratic side to do that — a lot of opposition, in fact."
But Democrats are not unanimous in their opposition. Durbin said it could win his support.
"To just say we're just going to do that alone? No, I wouldn't be for that — that kind of a potshot approach," he said. "But if you're talking about a package that gives another 20, 30, 40, 50 years of solvency to Social Security, that takes care of the poorest people on Social Security, who don't even reach the poverty level; takes care of the elderly, whose savings are gone — I'm listening. Let's talk it through."
But Durbin, like most Democrats, is wary of including any far-reaching and long-lasting entitlement reforms in a hastily thrown-together deal to avoid the fiscal cliff.
Independent Sen. Bernie Sanders of Vermont earlier this week rallied opponents of such reforms.
"People are very clear about what they want, and then you got folks here inside the Beltway who get huge amounts of campaign contributions from the wealthy and large corporations, they have a different perspective," he said. "But we have the people on our side. Let's stand tall, and we're going to win this thing."
Even if that means going over the fiscal cliff.
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