Tax Hikes ... Yikes!

     

     Financial writer Lori Montgomery in the Washington Post noted that almost 90 percent of American taxpayers will see their tax bills rise next year, to the tune of about $2,000 for middle-income households earning between $40,000 and $65,000 a year, if Congress does nothing about the fiscal cliff.

     If you're like me, you've heard of the fiscal cliff, but you don't know exactly what it is. The term is shorthand for a series of federal spending cuts and tax hikes that will automatically go into effect on January 1, 2013, if Congress doesn't act to override them. These automatic measures originated in Congress last year as part of a compromise to pass the Budget Control Act of 2011.

     The tax hikes include ending the temporary 2 percent reduction in the payroll tax (which funds Social Security), ending some tax breaks for business, changing the alternative minimum tax and inaugurating some taxes to start paying for the Affordable Care Act. They will also affect certain tax credits for low-income families, as well as the college tuition tax credit.

     At the same time, budget cuts will go into effect for over 1,000 government programs, including $55 billion in defense cuts and $11 billion in lower Medicare payments. The White House detailed other spending cuts back in September. 

    Only you can figure out how the fiscal cliff will affect your personal situation. But financial experts say it will have a significant effect on the economy as a whole. They estimate the combination of tax hikes and spending cuts will slash half a trillion dollars off the national debt. But they will also cost an estimated 2 million jobs and will most likely throw the country into another recession. (Like we ever got out of the last one.)

     Of course, there's still time for Congress to agree on spending levels and extend the Bush tax cuts, or some of them. Most people trust that Congress will act during its lame duck session, after the Presidential election. I guess we should all hope for the best, but prepare for the worst.

    

No Reason to Panic

     I make a habit of reading the news and trolling through retirement sites and perusing the financial pages, and I have to admit, sometimes they get me pretty discouraged. Actually, to be perfectly honest, sometimes they send me into a panic. Social Security is going broke. You're not saving enough to retire. Your medical bills will bankrupt you in retirement.

     But then I pause and realize it's time for me to stand back and try to gain some perspective. A lot of the advice we get about retirement comes from people trying to push a political agenda, or sell us a financial product -- two sources that we should take with a large grain of salt.

     I'm not saying we shouldn't live prudently and save for retirement. To paraphrase one comment I saw recently:  If you spend all your money while you're working, and save nothing for retirement, that's exactly what you'll have when you retire -- nothing.

     But too much anxious advice about retirement can be enervating and counterproductive. Because often what you see just isn't true, or it may pose a problem down the road but is nothing to panic about now.

     For example, some of our budget hawks in Washington run around telling us the sky is falling on Social Security. But Social Security has the resources to pay full benefits through the year 2032. That gives politicians 20 years to make some adjustments.

     Even if you believe (as I do) that politicians are more concerned with their own careers than they are about the future of our country, this still gives them plenty of time to argue out the issues, agree on a few compromises, and pass some laws amending the program. But even if politicians do nothing for 20 years, Social Security will be able to pay 75 percent of its obligations. Now, nobody wants to take a 25 percent pay cut. But that's not the same thing as going broke.

     Meanwhile, financial experts from banks and investment firms keep telling us we're not saving enough for retirement. According to a report from LIMRA, an association of insurance and financial companies, some 49 percent of Americans aren't saving for retirement. But that figure includes people in their 20s, who certainly have higher priorities.

     Another survey from the Employee Benefit Research Institute found that 44 percent of Baby Boomers and Generation Xers are not saving enough for retirement. But that doesn't mean 44 percent of Americans are destined for a life of poverty in their old age. Many of the 44 percenters have built up some nest egg -- just not enough to satisfy the experts. Maybe they won’t have enough to live the dream retirement lifestyle, but they probably will have enough to stave off starvation and keep a roof over their heads. Furthermore, it's younger Gen Xers who are more likely to be behind on their savings than Baby Boomers. And those Gen Xers—people in their 40s—have time to catch up.

     How about the War on Seniors? Ben Bernanke has allegedly declared war on seniors by keeping interest rates low. President Obama has supposedly declared war on seniors by raiding Medicare to pay for his health plan. And a Romney economic adviser callously joked that outsourcing seniors to Third World countries might lower Social Security costs.

     A proposed Republican budget plan aims to balance the federal budget on the backs of the elderly—privatizing Medicare and getting rid of Social Security entirely. But remember 2005? A re-elected President Bush went on a tear with his idea to replace a part of Social Security with individual retirement accounts. He got nowhere fast. Of course, seniors should be watchful of politicians trying to target retirees for major cuts in benefits. But the idea that there is an organized war on seniors is the product of politics and paranoia.

     And finally, some so-called experts warn us that we're fools to think we will spend less in retirement. But while I think maybe that's true if you have a bucket list that includes extensive European vacations and shopping excursions to Rodeo Drive, it's not true for typical retirees. For example, as retirees with lower earned income and some investment income, we pay lower taxes. Our housing costs go down, especially if our mortgage is paid off. Our local government likely offers a senior discount on real-estate taxes. And many of us downsize our family home to live in a smaller, less expensive area. Also, presumably we will not be supporting our kids. And don't forget: We no longer have to set aside 5 to 10 percent of our income to save for retirement.

     Of course, I'm relatively new at this. I've been semi-retired for a while now, basking in the afterglow of my final college tuition payment. Do you think I'm living in a fool's paradise? Do you think I should be biting my nails and developing an ulcer and . . . paying more attention to the news?

     

May the Last Be First -- at Least Sometimes

     I was at a college over the weekend attending an honors ceremony. B's son was chosen to deliver a short welcoming speech, and then he was among those being honored.

     There were approximately 160 students in the hall, being recognized in two separate categories. The provost called up the first group in alphabetical order, and when that was over he started again, calling up the second group in alphabetical order. And what suddenly struck me is how incredibly unfair this is. It's something we do all the time, without even thinking about it. We arrange people alphabetically. The A's always go first, then the B's and the C's and on and on, until we get to those W's and Y's and Z's who always, without exception, bring up the rear.

     Now you people named Abbott or Brown or Connors probably never thought it should be any different -- if you ever thought about it at all.

     But here's what I saw. As the A's and B's and C's mounted the stage, the audience paid rapt attention, drinking in the ceremony and the significance of the honors being bestowed. The smiles were big; the applause was loud and enthusiastic.

     But by the time the kids named Waters and Williams and Winters walked up on stage, the audience had already seen a long line of people come up and take their certificate and shake hands with the provost. The audience was getting tired and bored. They were anxious for the ceremony to be over and done with so they could go about the rest of their day. Now the smiles were merely polite, the applause weak. And you could just tell, instead of enjoying their walk across the stage, the kids at the tail end of the line were feeling pressure to hurry up and get it over with.

     Think of the poor boy named Yu. He was last to walk onstage in the second category. The attention of the audience -- including his fellow students -- was not on Yu, but on the end of the ceremony and what came next. So Yu rushed to grab his certificate. He made a quick handshake and heard his fellow classmates shift in their chairs and talk restlessly -- anxious for him to scoot offstage so they could break free of the stuffy auditorium and go out and enjoy the beautiful afternoon. These kids weren't being mean, not at all; they were just being kids.

     I remember when I was in high school, and then college. For many of the classes -- not all of them, but enough to notice -- the students were seated alphabetically. The A's and B's and C's sat in the front row. The S's and T's and W's were expected to file into the back of the room. How fair is that?

     I couldn't help but think, sitting there in the audience this past weekend, that the provost should have perhaps arranged the first category in alphabetical order, then the second category in reverse alphabetical order. Or, he could have picked a letter randomly and begun there, going alphabetically after that. Or he could have called up students in the order that letters are arranged on a typewriter keyboard.

     Or maybe we shouldn't do it alphabetically at all. Maybe kids should be arranged by oldest to youngest, or youngest or oldest, or some other way that doesn't always favor those at the top of the alphabet and treat those at the back of the alphabet as also-rans, postscripts, and bottom-of-the-barrels.

     It's not a big thing. It's a subtle thing. But I bet, over time, being stuck at the end can have an adverse psychological effect on many of those who are never first, but always last.

     Maybe I'm sensitive to this, since I'm in the second half of the alphabet. But if it bothers me, then it probably bothers many of the T's and W's, Y's and Z's even more. I don't know. I have a friend named Zahn. I'll have to ask him about it.

     What do you think?

Do Presidential Debates Matter?

  
   An item this week that caught my attention, and might catch yours . . . 

     The magazine The Week gave us some perspective on presidential debates, offering a brief history of past presidential matchups and wondering if they help decide elections.

     Most of us probably remember the first Presidential debates, which took place in 1960 between Vice President Richard Nixon and Senator John Kennedy. According to the Museum of Broadcast Communication, the first debate, on Sept. 26, drew a TV audience of some 70 million viewers. There were three more head-to-head debates in October, focusing on foreign policy issues covering two tiny islands off the coast of China -- remember Quemoy and Matsu? -- as well as Cuba, Castro and the Cold War.

     Everyone knows that Kennedy won the debates, on style points, and went on to eke out the election. He got 49.72% of the popular vote compared to Nixon's 49.55%, although he did better on the electoral side with 303 to 219.

     We've all now come to expect Presidential candidates to debate each other. But did you know that there wasn't another Presidential debate for 16 years after the Kennedy-Nixon contest? Not until 1976 when Jimmy Carter challenged Gerald Ford -- and Ford famously flummoxed, saying there was no Soviet domination of Eastern Europe at a time when dozens of Soviet divisions were based there.

     So do Presidential debates make a difference? They did in 1960 and 1976, but experts say they usually are not decisive. A 2008 Gallup study concluded that a good performance typically gives a candidate a temporary boost, but nothing more.

     This year, some 67 million people watched the first debate between Romney and Obama, which Romney won handily -- that's more viewers than any debate since the Carter-Reagan matchup in 1980. The second debate, when Obama made a comeback, drew slightly less, about 65 million viewers. Now there's one more, on Monday night.

     Do the debates matter? You be the judge.

The Halloween Monster

     Over the weekend B and I took a trip over to Costco to stock up on paper towels, toilet paper, coffee, cereal, a few pounds of chicken and . . . Halloween candy.

     Halloween candy? Do you think I'm jumping the gun?

     Of all the holidays on the calendar, it's Halloween that I prepare for the farthest in advance. Not in terms of a costume or decorations. But you know, you can't take the chance that they'll run out of candy. And with all the risks associated with razors in the apples and LSD in the junior mints, you can't be too careful. So I take it upon myself to taste-test each batch of candy. Really . . . I do it for the kids!

Ready for Halloween

     My favorite is Kit Kat. I also like M&Ms -- the ones with peanuts -- and Hershey bars with almonds.

     But remember, I'm not doing this for myself. I'm doing it for the kids.

     So what's your favorite candy? Do you have one? I know a lot of people lose their sweet tooth as they get older. Their tastes become more sophisticated, and they take just a small half-teaspoon of sugar in their tea, and don't put any sugar on the cereal at all.

     Not me. My sweet tooth still works just fine.

     I know, I know, too much sugar is bad for you. Nobody should consume too many carbohydrates. I am fully cognizant of this. That's why, a couple of years ago, I gave up drinking soft drinks and went over to bottled water. (I strained my neck because I was patting myself on the back for being so good.)

     Then B got on my case because all those plastic bottles harm the environment. So now I reuse my plastic water bottles two or three times -- filling them up out of the tap -- before cracking open the next one.

     But I'm getting off topic. Halloween candy. All of our kids are grown up now and out of the house. But I still like greeting the little ones at the door and watching them dig into our bucket and come up with a couple of candy bars . . . and seeing the big smiles on their dirty faces.

     "You shouldn't let them grab," B scolds me.

     "Oh, come on," I parry. "It's Halloween. Let 'em grab for goodness sake."

Hey, who opened the candy?!?

     And I know . . . I remember, from my own childhood, the point is to collect as much candy as you can. You don't eat the half of it. The real fun is dumping out huge piles of candy on the floor after you get home, and sorting through looking for the good stuff, and maybe trading with your brothers and sisters. In the end, half of it goes stale and ends up in the garbage. Oh, I know it's a waste . . . bah humbug.

     Parents may roll their eyes, but I remember as a parent with young kids, I loved seeing the joy in their faces -- all this candy, it doesn't get better than this! Doesn't every kid deserve a moment like that?

     But still, as parents we do have to take some responsibility into our own hands. For example, a lot of kids have an allergic reaction to nuts. Can't let that happen. I'd better get those peanut M&Ms out of the bowl -- oh, and the Hershey bars, too!