Economy Archives - Page 2 of 5

2012 Federal Income Tax Brackets: Official IRS Marginal Tax Rates

Last year around this time we were in the middle of tax bracket drama as our elected officials in Washington D.C. were fighting over whether they would be extending the Bush tax cuts of the early 2000s (making them the Obama tax cuts?), or whether they would allow them to expire and rates to go up for everyone who pays taxes.

In the end Obama and the Democrats agreed to extend the tax cuts and in exchange were able to get the following concessions from Republicans:

Extend Bush tax cuts for everyone, for 2 years.
Reduce Social Security tax levied on a worker’s wages from 6.2% to 4.2% for one year.
Reinstatement of the estate tax at 35%
Extension of jobless benefits for another 13 months, beyond current 99 weeks.
Extend current tax rates on capital gains and dividends for two years, including for higher earners.
Extend a raft of business tax breaks, including credit for spending on research

2012 federal income tax rates The parts that affect most people include the extension of the rates for everyone (ensuring that taxes don't go up), and the reduction of the social security tax levied on worker's wages.

After this year, for the tax year 2012, social security tax levied on worker's income will be going back up to 6.2%. Get ready for the outcry!

2012 Tax Rate Projections

For the 2012 tax year, the tax rates have not been released as of yet, but several groups have projected what the rates will be. The rates are calculated by the IRS with a complicated formulate based on inflation rates among other things. Thankfully we don't have to figure it out on our own.

As you can see, the rates haven't changed much from previous years, just some slight upticks in the lower and upper ends of each bracket.

2012 Tax Brackets	Single	Married Filing Jointly
10% Bracket	$0 – $8,700	$0 – $17,400
15% Bracket	$8,700 – $35,350	$17,400 – $70,700
25% Bracket	$35,350 – $85,650	$70,700 – $142,700
28% Bracket	$85,650 – $178,650	$142,700 – $217,450
33% Bracket	$178,650 – $388,350	$217,450 – $388,350
35% Bracket	$388,350+	$388,350+

For comparison's sake, here is a look at the tax rates for 2011.

2011 Tax Brackets	Single	Married Filing Jointly
10% Bracket	$0 – $8,500	$0 – $17,000
15% Bracket	$8,500 – $34,500	$17,000 – $69,000
25% Bracket	$34,500 – $83,600	$69,000 – $139,500
28% Bracket	$83,600 – $174,400	$139,500 – $212,300
33% Bracket	$174,400 – $379,150	$212,300 – $379,150
35% Bracket	$379,150+	$379,150+

Standard Deductions Rise

The standard deductions for married and single filers are projected to go up slightly as well.

The standard deduction for married filing jointly is projected to rise to $11,900 in 2012 from $11,600 in 2011.
The standard deduction for singles will rise to $5,950 in 2012 from $5,800 in 2011.
Personal exemption rises to $3,800 in 2012 from $3,700 in 2011.

No Drama This Year, But Wait Until Next Year

So while the rates are seeing only slight changes this year due to inflation, next year could be shaping up for another battle. Not only will it be an election year, but the extension of the Bush tax rates will be up for debate again as they expire at the end of 2012. Buckle your safety belts, it's gonna be a bumpy ride!

What are your thoughts on what we could see next year when it comes to the tax rates? Will there be another battle about extending the rates?

The Great Depression Ahead And What You Can Do To Survive

By Contributor 5 Comments

You may have never heard of economist and wealth manager Harry Dent but many students of the economy have. Harry Dent wrote, The Great Boom Ahead, which predicted the financial bull market of the 1990’s. He also predicted that the 2000s would see the Dow Jones Industrial Average soar to 40,000 but later revised that down in 2006. His predictions are often extreme but for those who believe that history repeats itself, it would be irresponsible to dismiss his predictions as the words of a dooms day profit. He believes that it won’t be long before the world economies will have a financial meltdown not seen since the Great Depression.

What do you need to know about the details of his forecasts and how dire are they? If he’s right, what should you do to protect yourself against this complete meltdown of the world monetary system? Don’t say we didn’t warn you.

Harry Dent

Harry Dent has taken his share of criticism. Although there are a lot of people who make dire predictions in order to get a little face time with the financial media, Dent has years of research to support his claims. Not all of his predictions have panned out but the research behind those predictions is studied by best of the world’s economists.

One of his best known theories has to do with long term spending habits. He believes that once a person has kids their spending picks up and once their children graduate from college spending turns to paying down debt and saving for retirement. According to Dent, spending peaks at an average age of 50 years old. He believes that the baby boomer generation had an average peak of spending in 2009 which represents that top of the stock market for the foreseeable future.

His Predictions

To sum up his ideas, the only reason we haven’t seen a complete economic meltdown is because the United States Federal Reserve continues to print money and artificially stimulate the economy but the banking crisis has left so many consumers and businesses drowning in debt that there is no amount of stimulus that can allow the economy to recover. The only way to recover, according to Dent, is to allow it to correct without the help of artificial stimulus.

Another one of Harry Dent’s theories is that when a bubble bursts, it returns to its pre-bubble level. This, according to him would put the Dow Jones Industrial Average at 3,600 to 5,000. He also sees gold correcting to a price of $400 to $500 per troy ounce and home prices falling significantly more. Florida, Dent’s state of residence may see home prices fall as much as 30% to 35% before the bottom emerges. Finally, he believes that unemployment could rise to as much as 15%. If his predictions are true, this would represent a crisis not seen since the Great Depression. He believes that all of this could begin as early as 2012.

What Can You Do?

If he’s right, first he suggests selling your home and renting until the crisis comes and goes. He also believes that now isn’t the time to believe that the markets will recover if you need money for retirement. Once the crash starts, demand that your financial adviser pull your money out of the market and in to ultra-safe investments. Once the markets bottom out, it may represent the buying opportunity of your life.

Bottom Line

His critics are quick to point out that Harry Dent has made his fair share of incorrect predictions. He may be too severe in his forecast but it’s hard to argue that with the amount of debt held by governments and even more important, individual households presents a problem. Unless the government can find a way to get household debt to a manageable level nationwide, there is very little that can be done to prevent a meltdown. Most economists agree that further stimulus of the financial markets may be detrimental to the markets.

Do you believe Mr. Dent? If you do, you’re not alone. Let’s hope that he’s wrong.

3 Economic Concepts Everyone Should Know

By Contributor 3 Comments

The most important financial asset that exists isn't gold, cash, or even stocks — it's knowledge. Give a man a strong understanding of finance, investing, and economics, and he'll be much more likely to succeed in the material world than if he didn't have that knowledge.

In this post, let's take a look at one of the most neglected branches of human knowledge — a topic that should be exhaustively covered in high schools, but unfortunately is — economics.

More to the point, let's analyze three principles of economics that everyone should understand, whether you're involved in central planning or just budget planning.

1. Trade Offs: There's No Such Thing As a Free Lunch.

This is probably the most important “lifestyle economics” principle: all good things require trade-offs. A more common way of describing this is through the old cliche “there's no such thing as a free lunch.”

In order to go to college, for example, one might nee to give up 4-5 years, possibly tens of thousands of dollars, accept debt, live in cramped spaces, and go without concistent sleep for literally years. It might be a wonderful decision — especially if it's an Ivy League college — but it still requires trade-offs.

Being honest about the tr`ade-offs and the real costs of everything we do, have, and spend money on. This is important, because it allows us to focus on our real priorities. For example, what's more important: earning extra money we don't need, or spending time with family? Earning extra money for retirement, or living a luxurious lifestyle that cuts away at savings?

Being honest about our priorities, and understanding that everything “costs” something, we're more likely to pick actions that lead to the most possible gain for ourselves and our families.

2. Supply and Demand: If You Build It… They Still Might Not Come.

This is probably the most important issue of economics. If there's a large enough demand, and it's theoretically plausible to fill that demand, then the supply will be filled. This all works on a curve of course.

For example, why do some people decide to work at McDonalds? It's not a great job, now is it? The answer is in supply and demand — several layers of it. There's not a greater supply of better jobs, but there is a large enough demand for money that people who don't like the place will end up working there.

An old economist once joked that you could train a parrot to squawk “supply and demand” and that it would be able to answer every economics question asked of it. That's pretty close.

Why do American keep voting for a congress that they don't really like? Supply and demand. Why do people not work out even though they keep planning on it? Supply and demand — they have other things to do, and other values, etc.

Of course, supply and demand really only makes sense when we understand how trade-offs work as mentioned above. Both of those principles mix together so that the world makes at least a little more sense in light of them.

“Supply and demand” is how the market reacts to individuals who are themselves responding to their own individual incentives. Nothing is exempt from supply and demand. Elections, markets, regulations — they either account for it, or they have serious unintended consequences.

3. Scarcity. Almost Everything is Limited.

We only have so much time on this earth. We only have so much intelligence. We only have so much oil. The same goes for gold, land, etc. Because scarcity exists, the question then becomes — how do we handle this scarcity?

Pretending the scarcity doesn't exist can have huge consequences. In America, we see this mostly as an issue of consumer debt. In America, our government sees this happen almost always through federal debt. The leading cause of debt is people who refuse to accept that their financial resources are scarcer than they'd like.

Once you understand scarcity, you're more likely to understand supply and demand. And once you understand supply and demand, you're more likely to know how to respond to choice by making the right trade-offs.

Of course, these concepts are economic concepts, meaning they apply to way more fields than personal finance and investing — they also cover politics, psychology, and even moral behavior. That's why the study of economics isn't just the study of money — it's the study of human behavior in general.

Will The U.S. Default On Its Debt?

By Miranda Marquit 4 Comments

President Obama and lawmakers are in discussions right now, trying to come to an agreement about what to do about the debt ceiling. If the debt ceiling isn't raised, the United States begins defaulting on its debt.

Of course, we won't default on it all at once, and there are ways that the debt could, perhaps, be restructured. As August 2, the date that has been designated as the point at which we begin defaulting, approaches, many wonder what could happen if the U.S. cannot meet its obligations.

Should The U.S. Declare Bankruptcy?

US Debt Default

Some think that the best course of action is to just announce that we're bankrupt, default on everything, and start over — hopefully with better money habits as a nation going forward. Others, though, point out that such a course of action would result in difficulties for us getting the revenue to start over. Borrowing at least some of our capital has been a reality since before the U.S. was a country. Our Founders didn't pay for the Revolutionary War entirely with money they had in hand; some of the funds were borrowed. Just like businesses rely on borrowing to get immediate capital for immediate needs, and then pay it back, the government operates on a similar principle. If we default now, we would pay a much higher interest rate on future debt. Our credit rating as a nation would tank.

However, just as a person — or an individual — can get in too deep, the U.S. government has done just that; we have spent beyond our means, and the current deficit level is unsustainable. Avoiding a default by raising the debt ceiling is probably necessary right now, to avoid default. Once that is done, though, it's time for America to wake up and realize that the same money habits cannot be followed in the future. Serious, and painful, changes have to be made.

Cutting Spending AND Raising Taxes

No one wants to be the bearer of bad news, least of all politicians. No politician wants to say that spending cuts need to be made, and that taxes will need to be raised. Some would like to think that doing one thing or the other will result in fixing the deficit. Sadly, we're far beyond that point at this juncture.

Someone who is badly in debt, and who is serious about getting out of debt, knows that there is a point at which only so many cuts can be made. The U.S. is probably at this point. The deficit problem is so big that no amount of cutting can fix the problem. We need to figure out our spending priorities as a nation, and make cuts to various budget items that don't fit the priorities.

But we also need to raise revenue. An individual serious about paying down debt will find ways to raise more money, including taking on a distasteful second job. The U.S. is in that position. More money needs to be raised, and that means that taxes need to be raised. Fixing our current debt problem as quickly as possible means combining expense cutting with revenue raising — even if no one wants to acknowledge that with an election year coming up.

If we do manage to get out of this mess, we will have to hope that, as a nation, we have learned a valuable lesson.

President Obama Signs Repeal Of 1099 Tax Reporting Provision Of Health Care Plan

By Mr. Money 5 Comments

A while back when President Obama and congress passed the health care reform law, there was widespread criticism from some small business groups and lobbies because of some stringent new 1099 tax reporting requirements that was a part of the law. Basically that portion of the new law aimed to increase government revenue by having small business and freelancers (like myself) report more transactions to the government via 1099 reporting.

In the past small businesses and freelancers would have to report to the government any time they purchased $600 worth of services from an outside vendor. The new requirement, that was to go into effect in 2012, would also make it a requirement that small businesses and freelancers file a 1099 for every company that they purchase $600 worth of goods from as well. While that may not sound like a huge deal, many recognized that the costs to comply with this order for many small businesses would be a job killer, and in some cases, a business killer. At the very least it would mean a lot of time and money wasted by businesses reporting on what could potentially be hundreds of transactions that could possibly put any vendor over the $600 threshold.

Because it was agreed that this part of the new law wasn't a good thing, Congress and the President worked to come up with a repeal of the 1099 reporting requirement.

1099 Reporting Requirement Repealed

Before the election last fall the talk of how to repeal the 1099 reporting requirement of the health care law started. While it didn't get passed last year before the election, this month the Senate and House were able to come to a solution. They passed a measure that would repeal the 1099 reporting requirement, and relieve small business from at least one more pressure they don't need in this tough environment.

President Barack Obama signed a bill repealing a tax-compliance mandate in last year’s health- care law, giving a victory to business groups that led a campaign against the requirement.

The repealed provision, under which companies would have had to report more transactions to the Internal Revenue Service, was included in the law as a revenue-raising measure. It was to have taken effect in 2012.

“Small business owners are the engine of our economy and because Democrats and Republicans worked together, we can ensure they spend their time and resources creating jobs and growing their business, not filling out more paperwork,” Obama said today in a statement released by the White House.

To cover the cost of the forgone revenue from the repeal, the legislation Obama signed today includes provisions that will curtail health-insurance tax credits in the health-care law.

How Will They Pay For The Decrease In Revenue?

The new 1099 reporting requirement was expected to increase revenue by 21.9 billion dollars, which would help pay for the new health care law.

So where are they going to find that money now that the 1099 reporting portion of the law has been repealed? Though President Obama says he isn't happy about it, they will be minimizing who will be eligible for certain health care tax credits under the new law. (Of course they would never consider cutting back on certain spending provisions in the law!)

The new law changes the portion of the health-care law that deals with the health insurance tax credits that low- and middle-income Americans will get.

Eligibility for the tax credits, which are paid directly to health insurers, is determined each year by examining income from a prior year. At the end of each year, there is a reconciliation through which the government can seek repayment of credits from people whose incomes rose.

The new law changes the calculation and will require more people to return overpayments. Democrats maintained that this portion of the legislation represented a tax increase for people who happened to receive a year-end bonus.

So the government has realized that certain provisions of this law might put an undue strain on small business, and have now repealed those measures. Now if only they would see just how much of a strain the rest of the law will put on our health care system in general – and repeal that as well! (</end rant>).

What do you think of the 1099 reporting requirement repeal? Are you happy about it like I am? Do you think that they should have left it in place? Give us your thoughts in the comments!

Government Considers New Rebates For Electric Vehicles: Cash For Clunkers Part Two?

By Mr. Money 7 Comments

A while back the Obama administration put out a rebate program for new car buyers called Cash For Clunkers where the new car buyers could get between a $3500-4500 rebate on the purchase of a more fuel efficient new car, in exchange for trading in their old less fuel efficient vehicle. The program had the goal of trying to get old gas guzzling clunkers off the road, while at the same time getting people to buy more fuel efficient vehicles.

The program, while it was a nice idea, was limited in scope as one analysis estimated that less than 5% of vehicles still on the road at the time were even eligible to be turned in, in exchange for the rebate. Add to that the fact that the program didn't really lead to an appreciable gain in new car sales as was hoped, just taking future sales and moving people's timelines up in most cases. The program was also fraught with government paperwork problems, and a lot of car dealers reported problems in claiming the rebates.

Now, we may have another green vehicles rebate coming down the pipe if the Obama administration gets it's way.

Rebate For Electric Automobiles

If you look at President Obama's budget, a current $7500 tax credit that can be claimed on purchases of energy efficient vehicles would be changed to be a direct rebate that would be available at the point of sale.

Ready for another cash for clunkers program? It looks like General Motors is attempting to replace it's own consumer incentives with tax payer money. The car company, bailed out of bankruptcy in 2009 by the American tax payer, appears to be turning the government into an automatic rebate provider.

The Obama administration and their friends on Capitol Hill are floating around a proposal to change the $7500 tax credit for green vehicles. This change can be found not only in President Barack Obama's budget but also a bill proposed by Senator Debbie Stabenow, Michigan Democrat.

Edmunds.com, a 45 year old trade magazine company that provides automotive information, posted a Department of Energy document listing the department's funding highlights. The proposed Obama Budget, changes the existing $7,500 electric vehicle tax credit “into a rebate that will be available to all consumers immediately at the point of sale.”

In an appearance at a battery assembly plant in Indiana, vice-president Biden also talked about the change that they're hoping to make and how they believe it would be good for companies making products for green vehicles.

Last month, the White House endorsed making the $7,500 tax credit for electric vehicles available at the time of purchase. “You won't have to wait,” Vice President Joe Biden said at an a Indiana battery assembly plant, adding it would be like the cash-for-clunkers program.

Since the change has made it into the president's budget, and Senator Stabenow of Michigan has introduced a bill (“Charging America Forward Act” (S.298)) , it does seem like the administration is interested in seeing this through.

$7500 Green Vehicle Rebate

So how exactly would the rebate work? It would essentially be a $7500 coupon that consumers could use in buying an electric vehicle at the dealership.

Essentially, if one were to buy a $41,000 Chevy Volt, the buyer gets a $7,500 coupon, so the final price is $33,500. In the end, the auto dealer assumes the risk of the government giving them this tax credit.

There aren't a lot of purely electric vehicles on the market currently, but among the vehicles eligible for the rebate are the Chevrolet Volt, and the Nissan Leaf.

So how long would the rebate be available?

Representative Sander Levin of Michigan, the top Democrat on the House Ways and Means Committee, said last month he backed legislation to enable automakers to claim the tax credits on 500,000 electric vehicles. The current cap is 200,000.

So at the 500,000 electric vehicles cap, that would be around $3.75 billion dollars.

Who Does The Rebate Benefit?

To me one thing that is a bit funny about this rebate is how the company it most affects, GM, is one of the few companies that the government actually has a big interest in via the “too big to fail” bailouts of a few years back. So in essence the government owns a big interest in one car company and is now making legislation that mainly helps that company. Interesting.

GM, with about 24 percent of the electric-vehicle market, and Nissan will be the winners, because they’re already selling the cars, said Michael Omotoso, director of powertrain forecasting at J.D. Power. Honda Motor Co., which is at least a few years away from selling an electric model, will be among the losers, he said.

Other carmakers have expressed some displeasure with the idea of the rebate as it will give an unfair competitive advantage to GM and Nissan, the companies with an electric car on the market already. Others, like Ford, are rushing to get their electric vehicles on the market for end of 2011 or early 2012.

In the end the those who were considering buying electric vehicles previously will most likely be jumping on this rebate once it becomes available- if it becomes available. For many others even with the rebate electric vehicles are still pretty costly, and even a rebate of this size may not be enough to convince them to move over.

What do you think? Will this rebate become law, and what effect will it have on the sales of electric vehicles? Would it be enough to convince you to move to electric, or do electric cars have more hurdles to clear before you'll consider them?

Main Menu