No longer willing to spend my time uncovering every bad idea concocted by Congress, Media, Politicians, and others who hope to become noticed, I have narrowed the search to only the worst of the recent batch. At least for a while, until I get rejuvenated. It takes too much time and effort to find and refute each and every dumb thing these days, so I am being selective.
Our “Best of the Worst” stupidity entry is a proposal to bolster Social Security–itself a good idea. Before getting into the weeds, I refer our readers back to my past 2 Blogs, available on strivuswealth.com. Both fall into the general category of faulty “Tax the Rich” problem-solving, as does our current highlighted proposal.
Today’s Hall of Fame entry is presented by two ostensible researchers, who propose to save Social Security by reducing or eliminating tax breaks for contributions to Qualified Retirement Accounts. You know, those pesky and discriminatory 401(k) Plans, 403(b)s, IRAs, and the like? Higher-income Americans seem to enjoy greater benefits from contributions than do their lower-earning counterparts. Maybe they make more and larger contributions?
There is Dumb, there is Really Dumb, there is Government Dumb, and then there is Hall of Fame Dumb, like this proposal. From its very enactment in 1935, Social Security was intended to be an insurance system, providing a supplemental retirement income plan for those who needed it the most at the time of retirement.
As with any insurance program, it stands alone and independent financially, taking in premiums, and doling out benefits. Social Security inflows include mandatory FICA withholding, income tax collected on benefits paid out, and an occasional one-time boost to adjust for a change made by Congress. A classic example of Congressional program expansion was adding Disability Benefits to Social Security, and the Trust Fund had to be bolstered until collections covered initial and ongoing disability claims.
Today’s winners have thoughtfully(?) set out a plan to – wait for it — Tax the Rich. Since only the top half of American Workers pay income taxes, using General Revenues to bolster Social Security amounts to simply letting “The Rich” pay yet another gigantic portion of the American lifestyle, the Social Security System. Lower-income earners get off unscathed.
Regardless of how much wealth is controlled by “The Rich,” it is a pittance compared to the rate of government spending. Confiscating 100% of assets held by the uber-wealthy would fund the government for a few weeks, after which those spent assets would earn no more income or tax revenue.
Hall of Fame Dumb.
Van Wie Financial is fee-only. For a reason.
Social Security is failing, due to an imbalance between the inflow of funds relative to mandatory outflows for monthly benefits. Simple logic dictates that step one in curing an insolvency problem would NOT involve reducing incoming dollars. Yet, a current proposed Bill does exactly that. Or so it seems.
Most Americans are unaware that Social Security funding currently consists of several components. Everyone who ever had a job knows about mandatory Payroll Withholding, but that is just the beginning. Income Tax on benefits paid out are also turned over to the Social Security Administration. Occasionally, direct deposits are made by Congress, usually due to large, mandated changes in Social Security rules. Above minimum income limits monthly benefits are partially (either 50% or 85%) taxed at marginal income tax rates. These funds are all allocated to Social Security, separated from General Revenues, which are primarily individual and corporate Income Taxes.
Dubbed “You Earned It, You Keep It,” the current proposal would seemingly eliminate one primary source of Trust Fund revenue by eliminating income tax on all monthly benefits paid out. Originally promised by the designers of the Social Security System, it seems logical. But look under the hood.
Saving a gigantic system by starving it for revenue seems superfluous. Is that really what “You Earned It” means? Unsurprisingly, no. It is merely a smokescreen designed to sell the proposal to Americans who are being kept in the dark. Reading beneath the headlines, we find that revenue loss from the taxation of benefits is quietly replaced from General Revenues. The lower-income half of Americans do not pay into the General Fund. The result? Tax the Rich.
But that’s not all. To justify the claim of extending the solvency of the current system, mandatory payroll taxes (FICA Withholding) would be applied to all earned income. The 2024 income limit is $168,800, after which no more FICA Withholding applies. Again, Tax the Rich.
Nowhere in the “You Earned It” proposal is there any mention of raising the eligibility age for younger workers. Increasing longevity of recipients is the cause of the impending shortfall. This very situation was present in the early 1980s, when President Reagan and Congress raised the Full Retirement Age from 65 to 67, phased in gradually over decades. That simple process increased Social Security solvency by about 75 years while giving young workers ample planning time.
With an eye to long-term solutions, we can see from “You Earned It” that we must be diligent, as Congress is willing to sneak in provisions that would simply apply the worn-out pursuit of letting The Rich pay for everything. It won’t work, because it can’t ever work. When will they learn?
Van Wie Financial is fee-only. For a reason.
Today’s self-described “Progressives” seem to have adopted the universal answer, “Tax the Rich.” It doesn’t matter what the question might be; the answer lies in a burning desire to punish successful Americans through taxation, in the name of solving societal problems. Constantly tilting at the windmills of increased government revenue, these people live in a political Utopia we call the “Big Lie.”
To illustrate The Big Lie, we can examine President Biden’s recent claim that “The Rich” only pay an 8% tax rate, far less than the rest of us. An old adage says that there are 3 kinds of lies: White Lies, Damn Lies, and Statistics. In today’s world, a fourth type of lie, and perhaps the most insidious, is the Lie of Omission. The Big Lie is a combination platter, based on the Progressive notion that when a lie is repeated often enough, it is true.
Many politically liberal activists have long favored and frequently introduced, the concept of a Wealth Tax. So far, it has not been implemented, partly because it would be virtually impossible to administer, but also as it is not likely to pass Constitutional muster. Progressive activists remain steadfast in their attempts to fleece our hated Billionaires, who ironically fund a large portion of political campaigns for those very politicians.
The fundamental precept of a Wealth Tax is to levy a tax on appreciated, but unsold, assets. In our Blog of December 13, 2023, we referred to the Wealth Tax concept as, “Taxation Without Monetization.” Taxes are generally derived from the proceeds of income-generating transactions, whether earning income or selling assets. When payment is made, we call the income “realized,” meaning received. The worker, or the seller, keeps the post-tax proceeds of the transaction after the government collects its legal percentage from the realized cash flow.
American taxpayers understand that one of the most favorable tax rates on realized income is the Long-Term Capital Gains Tax (LTCG), which is applied to the realized (monetized) gain on assets held at least one year. For most Americans, that rate is 15%, but it rises to 20% for higher-income Americans. “The Rich” pay an additional tax of 3.8% on investment income, brought to them by ObamaCare, and designed to further fund Medicare.
Throughout modern American history, tax rates have fluctuated wildly. From government records, we find that when tax rates were raised, revenue shortfalls resulted. When authorities react to reduced tax receipts, they lower tax rates. Following each tax rate decrease, revenues to the government rise. Such a simple and demonstratable principle, yet the Big Lie never dies.
Van Wie Financial is fee-only. For a reason.
In last week’s Blog, we identified certain topics in Elder Care that play a large role in our comprehensive personal financial planning practice. Today’s topics are no less serious and pertain to a wide variety of our clients, radio listeners, and community residents. Keep in mind that these are areas of practice for Elder Law Attorneys and that we are not lawyers. We will, however, work with your attorneys when we have a client relationship.
Before we address any issues, it is wise to address the 800-pound gorilla in the discussion – cost. Qualified Elder Law practitioners will discuss your situations at no initial expense, and either make an offer to help or direct you to charitable agencies that render low or no-cost assistance. There is truly no reason to ignore an important issue due to cost expectations. In fact, most people have much more to lose than the cost of receiving assistance.
Veterans’ Benefits is an area of concern for a significant portion of Northeast Florida’s population. Most veterans (and their families) are unaware of the vast array of benefits available to those who have served in the armed forces. The U.S. Government is not the greatest communicator with respect to available veterans’ benefits. Certain Elder Law attorneys are qualified to direct veterans to the panoply of available benefits.
Veterans, their families, and surviving spouses should seek assistance not only with available benefits but also in navigating the interaction between veteran-only benefits and generally available programs. Of particular importance to older vets is the VA Aid & Attendance Program, which provides Long-Term Care benefits for nursing care, either at home or in a facility. For many families, this makes the difference between financial comfort and poverty. For many, it facilitates staying in a personal home, as most prefer.
Estate Planning is a complex area of personal finance and one that our clients take seriously. Elder Law can be an integral portion of overall Estate Planning, depending on the status of family members. Factors such as age, health, veteran status, asset levels and types, tax considerations, and a host of other considerations interplay in Estate Planning.
Among the most complex topics in Elder Law is Special Needs Planning, although the affected individual can be of any age. Providing a lifestyle, including comfort and safety, can be a complex endeavor. Elder Law Attorneys are a valuable source of information and may be assisted by your Certified Financial Planner®.
Never assume that before you can receive help you need to spend all your money and liquidate your assets. We can assist you with recommendations.
Van Wie Financial is fee-only. For a reason
On a recent broadcast of the Van Wie Financial Hour radio program, we featured a Board-Certified Elder Law Attorney. Having spoken with her in the past, we knew that some of what she had to say would pleasantly surprise many of our listeners. As non-attorneys ourselves, we are passing along some fundamental clarifications regarding misunderstood areas of Florida’s asset protection laws for our millions of older residents.
We have identified at least five specific areas of Elder Law in which our clients have expressed interest: Medicaid Planning, Veterans’ Planning, Special Needs, Probate/Trusts/Estates, and Elder Abuse. As professional financial planners, among the most interesting misconceptions we find are in the arena of Medicaid qualification for nursing home care. As parents, friends, and citizens, the most worrisome arena is Elder Abuse.
Most Americans understand that Medicaid is a State-run program for people with very little wealth and few assets. Very few understand that Florida is exceptionally friendly to elders in identifying those who could qualify for Medicaid nursing home benefits. Knowing some of the basic rules can protect our citizens from needlessly divesting assets to seek needed care for elderly spouses, parents, etc. Call an Elder Attorney before making assumptions based on false rumors.
Medicaid qualification begins with an assessment of assets owned by the applicant. The maximum is $2,000, an absurdly low figure in today’s economy. But that figure is misleading, as it does not include protected assets, which include a Homesteaded residence, an automobile, and Qualified Retirement Accounts.
Further, assets may be legally shifted between spouses to avoid the 5-year “lookback period,” during which assets removed from the intended patient’s control would otherwise be counted toward the low qualification limit. Done correctly, assets can be sheltered from the lookback period, and preserved for remaining family members. Before depleting assets for someone you believe to be a nursing home candidate, consult an Elder Attorney to determine your minimum requirements.
Elder abuse is rampant across America and takes place in any environment and within all socio-economic levels. It is a costly national problem, both in terms of financial losses and maltreatment. Abuse can and does take place anywhere and everywhere, from paid facilities to personally owned properties. When and where abuse is suspected, call an Elder Attorney immediately to determine your rights. We will be covering the other serious Elder Care topics in future Blogs.
Van Wie Financial is fee-only. For a reason.
With each incoming new year comes a new set of guidelines on contributions to Qualified Retirement Plans, both company-sponsored and individual. Changes are ostensibly made to reflect inflation over the prior year, although the increases are generally much smaller than increases in the actual cost of living. Up to the limits specified by the IRS, Americans of all ages should strive to maximize legal contributions. This applies to both deductible and after-tax (Roth) contributions.
The primary taxpayer-friendly feature of all Retirement Plans is the tax-free or tax-deferred growth over many years. Compounding earnings over long periods of time is a major component of wealth accumulation. As wondrous as it is, compounding takes a long time to realize its true power. In a tax-free or tax-deferred environment, that time frame is reduced greatly.
People who are dedicated to wealth accumulation must start early and hang in there for many years. Along the way, they should be dedicated to maxing out annual contributions to whichever Qualified Retirement Accounts they use. That’s where the IRS comes in, placing a wet blanket on our ability to contribute more than their guideline amounts. When those guidelines get revised, the best thing a saver can do is to immediately increase contributions for the year of change. That is right now for 2024, and while the changes are small, they remain important to reaching our wealth targets.
For 2024, IRA owners can contribute an additional $500, bringing the annual limit to $7,000, plus a $1,000 “catch-up” contribution for people ages 50 and up. Company-sponsored Plans, such as 401(k), 403(b), and others, may now be funded with an additional $500, for a maximum of $23,000. For age 50-and-up participants, catch-up contributions are once again $7,500.
While the 2024 increases are far from generous, everyone should make an effort to reach the new limit during the year. Limiting contributions to the percentage a company matches is not an effective method of maximizing results. People not already maxing out contributions should dedicate themselves to increasing their contributions annually.
Saving for retirement demands diligence and planning. Improving results has several components. Starting early, maximizing contributions, making contributions as early as possible in the year, and taking an appropriate amount of investment risk are key components for the accumulation of wealth. Most people can be helped by using a competent financial advisor. Van Wie Financial has a proven record of assisting people with setting and achieving responsible retirement goals.
Van Wie Financial is fee-only. For a reason.
We reported last week in this Blog how Americans are focused on improving their own personal finances in 2024, and we applaud their efforts. Now comes the difficult follow-through. With resolutions, whether formal or casual, time is the enemy of conviction. The time to start is now. The time to relax is, well, never. Change is not an event; it is a process.
Many people resolve to develop a relationship with a financial advisor/investment manager. Choosing the right advisor has never been easier. Before making any calls, a prospective client should understand some fundamental terminology. Fiduciary is a good start. Use of the term requires the planner to place the interests of the client ahead of his or her own. In other words, both parties are on the same side of the relationship, sharing goals.
Fee-only refers to the method of compensation received by the planner, and in this case, means no commissions will be received, thus avoiding inherent or potential conflicts of interest. Don’t confuse fee-only with fee-based, as they can be totally different..
Certified Financial Planner® (or CFP®) is the highest professional designation available among the many qualifications used by people in the financial planning arena.
Registered Investment Advisor (or RIA) is a form of doing business enveloping all these concepts. It is among the fastest growing business models in society, serving hundreds of thousands of Americans. RIAs are regulated by the U.S. Securities and Exchange Commission (SEC), or State Securities Regulators for smaller RIAs (under $100 Million in assets under management). Many investors prefer the personal touch provided by small boutique firms, whereas others prefer to be part of mega-companies.
Finding a potential planner to fit your needs is made easier by a few websites. Letsmakeaplan.org is the website operated by the CFP® Board, which is the organization that administers the CFP® designation. The tab Find a CFP® Professional will identify qualified individuals and companies in your area. NAPFA.org leads to the website and corresponding search for members of the National Association of Personal Financial Advisors. Membership is open only to fee-only, fiduciary financial planners, guaranteeing a prospective client will be served by competent, unbiased professionals. Avoiding expensive mistakes is now easier than ever.
We wish everyone a safe, happy, and prosperous New Year. 2024 is slated to be a year of change. Hopefully, for the better. Hopefully, we can help.
Van Wie Financial is fee-only. For a reason.
In a sure sign of the times, Americans are concentrating on improving their personal finances in 2024. According to a recent Allianz Life study, recent financial difficulties have caused Americans to rethink their own situations. Unfortunately, the conditions that caused our difficulties also hinders relief. On top of already astronomical prices for necessities, inflation (while slowing) continues.
Study participants stated financial goals including their emergency funds, reducing debt, and beefing up Retirement Accounts. These are great ideas, but in a time of already stretched budgets, it is difficult to achieve all (or any) of them. Spending less, while earning more, is the only formula for realizing these lofty dreams.
Already we see a record number of Americans working multiple jobs. Thankfully, the job market is the brightest portion of our current economy. So far, the Administration’s attempt to kibosh the Gig Economy has been a failure, so companies such as Uber and DoorDash are enabling thousands of Americans to supplement their incomes. That is half the battle.
Saving more is a far more difficult challenge. Americans are running out of money before they run out of month, as elevated price levels create obstacles to reducing expenses. There is no real end in sight to our escalating cost of living. Increasing savings will require a reduction in lifestyle for millions.
In the spirit of the Season, we have been keeping this Blog as upbeat as possible. Along these lines, we congratulate all Americans who have resolved to do whatever it takes to improve their personal finances. Hopefully, these resolutions won’t go the way of January gym memberships, which tend to get ignored as weeks go on. Success will require changes, some unpleasant, and most likely long-lasting.
Van Wie Financial is dedicated to helping people realize their financial goals. To that end, we shall continue to bring our ideas and suggestions to the public every Saturday morning at 10:00 on WBOB radio (600 AM and 101.1 FM), and on our website, strivuswealth.com. Remember that you can call the show at 904-222-TALK between 10:00 and 11:00 every Saturday. We also answer questions submitted through our website to info@vanwiefinancial.com.
We wish everyone a safe, happy, and prosperous New Year. 2024 is likely to be a year of change. Hopefully, for the better. Hopefully, we can help.
Van Wie Financial is fee-only. For a reason.
With only 9 trading sessions left (as I write this), 2023 appears to be ending on a financial high note. The Dow-Jones Industrial Average (DJIA) closed last week with three consecutive new all-time highs. Meanwhile, the S&P500 Index also reached a new high, this one on a total-return basis, which includes dividends throughout the year. The NASDAQ Composite is up over 40% so far this year. Quite a performance, all in all.
So why did it feel so negative?
This time of year, at least when the equity markets have performed well, investors are generally upbeat and confident. Yet this year, based on many client meetings we have conducted in recent weeks, people are not feeling positive. Most are surprised by their outstanding Year-to-Date and full-year portfolio performance. We have been in dozens of conversations regarding the incongruity of perception vs. reality. Here’s a short list:
- For people living on a relatively modest income, inflation has hit them in two of the most sensitive areas, food and energy. These items have increased far above the government-reported rate of inflation.
- Wage increases have not kept up with price increases, and more people than ever are working multiple jobs to stay afloat economically.
- For three years, the bond market has been falling, causing low-risk tolerance investors to take a beating on their “safe” investments.
- Interest rates have been rising at a record pace, as the Federal Reserve (FED) has acted to curtail inflation. Many people have been aced out of the car and home markets, due to high payments on secured loans.
- Credit card debt, which has been growing for many years, featured relatively low-interest rates for some time. That is now ancient history, with absurdly high rates making balance reductions challenging.
- Political bickering, coupled with slanted media reporting, has divided us more than ever, and people with convictions are labeled as enemies. This negative attitude is reflected in almost every aspect of daily life.
- Formerly radical concepts, such as gender reassignment among children, are being forced into our lives, along with admonishments to accept what is intolerable to most Americans.
We could go on, but we’d rather point out the positive aspects of the Season. The market is forward-looking, suggesting that investors are forecasting good things to come. Rather than offer an opinion on that concept, we’d rather just wish everyone a safe, happy, and prosperous Holiday Season.
Van Wie Financial is fee-only. For a reason.
Insatiable governments are constantly searching for new sources of revenue, and the 118th Congress is no different. Sticking to the mantra of “tax the rich,” a handful of elected officials are constantly seeking new and creative ways to separate successful people from more of their assets. Unable to satisfy their spending appetites with a large portion of everyone’s earnings, certain members of Congress occasionally revisit the notion that a tax could (and apparently should) be levied on unsold appreciated assets. This insidious concept represents a form of taxing wealth instead of (or in addition to) income.
Back in February 2023, right here in this Blog, I dubbed this conceptual enigma Taxation Without Monetization. In our income-based tax system, taxes are levied in three categories. Earned income is taxed through withholding and/or quarterly tax deposits. Profits from sales of appreciated assets are taxed at the time of sale using a Capital Gains Tax. Unearned income, such as interest and dividends, is taxed annually. All payments are due only after the income is received.
Over recent decades, several attempts have been made by envious and spiteful government officials to implement a Wealth Tax. Currently in front of the Supreme Court is a case involving Taxation Without Monetization. This one sprung from the Tax Cuts and Jobs Act of 2017 (TCJA), under which a provision was intended to assess a one-time small Repatriation Tax on foreign profits voluntarily brought home to the USA in cash. IRS has interpreted that provision to assess a tax on unsold, but appreciated, assets held by individuals in overseas companies, but not yet voluntarily repatriated.
This did not sit well with Charles and Kathleen Moore, who were assessed a tax of $14,729 on shares of KisanKraft Machine Tools Private Ltd., a company in India that supplies tools to farmers. Moores’ shares have not been sold, so there is no cash flow from which to draw a tax. They contend that such a tax on unrealized profit is unconstitutional. It remains unclear how this tax situation came to the attention of the IRS.
Sometime in the summer of 2024, the Supreme Court is expected to make a ruling in this case. Should the Court decide against this tax provision, the concept of a Wealth Tax may be put to a well-deserved and abrupt demise.
As with all court cases, the devil is in the details, and there is no way to accurately predict the eventual outcome. In our opinion, this unfair and unpopular concept should be retired from the American lexicon. For our part, when the answer is released, we will bring the news to this Blog and to the Van Wie Financial Hour radio program.
Van Wie Financial is fee-only. For a reason.