Cardholders Prefer Debit as Credit-Card Use Falls

For the first time the total payment volume of debit cards in this country surpassed credit-card volume. As this article from Bloomberg.com explains, this trend will continue in 2010 as more taxpayers are trying to avoid incurring more debt. Considering the way of our economy at present, I think it absolutely great that people are being more conscientious about incurring more debt!

At San Francisco-based Visa Inc., the world’s biggest payments network, the total payment volume for debit cards increased by 7.9 percent in 2009 to $883 billion as credit-card volume declined by 7.3 percent to $764 billion. Volume for debit cards at No. 2 MasterCard Inc. in Purchase, New York, rose by 5.8 percent and 2.8 percent at No. 4 Riverwoods, Illinois-based Discover Financial Services.

“Consumers are turning from one form of plastic to another,” said James Van Dyke, President and Founder of Javelin. “Credit cards are falling out of favor as cardholders become more cautious and look for more conservative payment methods.”

Fifty-six percent of consumers said they had used a credit card in the past month compared with 87 percent who said they had in 2007, according to the study, which surveyed 3,294 people in November 2009 for that question. Other findings were based on data collected online from 5,211 respondents in March 2010 and 5,000 consumers in November 2009. If the rate of decline continues, 45 percent of consumers will reach for a credit card in 2010, the study said.

Continue reading at Bloomberg.com…

Weigh Pros, Cons of Debt-Relief Strategies

Depending on your unique financial situation, getting yourself out of debt is usually feasible with hard work and a tight budget. Even if doing so requires you to get help from a family member, or a company specializing in debt relief. Earlier today, I came across a great article from USA Today with a list of debt recovery strategies, as well as the pros and cons of each. I have included one of the tactics listed in the article (debt settlement), but be sure to read the full list at USA Today.com.

Debt-settlement companies negotiate with creditors to reduce the amount of debt you owe. You're typically directed to make monthly payments into a savings account. When a certain amount has been saved, the company will go to your creditors and offer to pay off a percentage of your debt. Debt-settlement companies say they often succeed in reducing their customers' debts by 50% or more.

Pros: Debt settlement is an alternative to bankruptcy for people who are struggling with large debts from financial setbacks, such as a serious illness or divorce, says Don Goldberg, a spokesman for the Consumer Credit Rights Campaign, a coalition of debt-settlement companies. It allows them to reduce their debts without losing their cars and their homes, he says.

Cons: Some debt-settlement companies charge large, upfront fees that reduce the amount of money available to negotiate with creditors. If you stop paying your bills — which some debt-settlement companies tell their customers to do — interest and penalties will increase the amount you owe. Your creditors could take you to court, and your wages could be garnished. Even if you're successful, your credit score will take a serious hit.

Where to learn more: Don't respond to advertisements promising fast relief from your debts. These are often placed by marketers that receive a commission for referring customers to debt-settlement companies. Instead, check out companies that belong to the Association of Settlement Companies or the United States Organizations for Bankruptcy Alternatives. Both are trade groups that require members to adhere to certain standards. Ask for a free consultation, and make sure you understand how much of your payments will go toward fees.

The Pros and Cons of Value Added Taxes

A few weeks ago the U.S. Senate rejected a proposal to institute a Federal Value Added Tax (VAT) with an 85-13 majority vote. Although common throughout Europe these taxes are highly unpopular in America. The Senate’s decision was significant, as it is the first time either of the Congressional chambers have sent a strong message against a Federal VAT.

It was important for the Senate to go on record voting against a VAT as President Obama’s debt commission is considering a handful of tactics to improve the country’s debt problems. The commission – which is made up of eighteen members including six Senators – is expected to submit a report later this year on how to deal with the country’s financial problems. All six of the Senators in Obama’s commission voted against a VAT. Since the President’s rules assert fourteen of the eighteen members must agree on the commissions final recommendations, it is very unlikely that a VAT will be included in their proposal.

Since we have been hearing so much about a Federal VAT over the past few years, I wanted to take a minute to review some of the largest pros and cons of such a tax with all of my blog readers.

PRO: Increased Revenue

Obviously, the largest benefit of any new taxes would be an increase in federal revenue. Currently, only state and local government agencies charge taxes on purchases, but by instituting a VAT the federal government could benefit from consumer spending as well.

CON: Regressive Tax System

Compared to our current tax system a VAT would be considered significantly regressive, meaning they benefit higher income taxpayers more so than those living closer to the poverty line. As we have all seen from recent headlines 47% of Americans pay little or no federal income tax. However, if the government instituted a VAT many more would pay federal taxes.

PRO: Easier Tax System

The U.S. tax system is very complicated and confusing. More and more Americans pay for professional tax help each year because of how complicated U.S. tax law has become. Proponents of a VAT suggest that it would make taxes more efficient and easier for taxpayers to understand.

CON: Higher Probability of Fraud

Although tax fraud is a serious issue currently facing the Federal government, many experts predict that since a VAT would create a more open system, that would likely lead to increased fraud. Additionally, the change from our current tax system to one with a VAT would be very difficult and time consuming, with lots of opportunities for fraud.

PRO: Lost Online Sales Taxes

Online stores such as Amazon.com, often get out of charging consumers sales taxes because of a 1992 Supreme Court ruling that retailers must have a physical presence in the state to collect excise taxes. However, some experts claim that a VAT could solve this problem of lost online sales taxes by levying taxes on all sales, even online sales.

CON: Less Revenue Than Expected

Unfortunately, it takes government agencies a lot of time and money to enforce VATs. In some countries, the VAT has generated significantly less revenue than expected because of the hefty enforcement costs. As such, it is hard to predict how a VAT would impact federal revenue since there is no way to predict how much the change, and ensuing enforcement would cost.

The Pros and Cons of Soda Taxes

With the recent passage of Obama’s health care reform bill, two topics have been in the news frequently: tax increases and the health of American citizens. One such tax increase is the so called “soda tax” which have been mentioned in Congress multiple times over the past few years; however, they have been unsuccessful in beening passed into law on a national level. With so many myths, and opinions about soda taxes being published online I decided to put together this blog entry explaining both the pros and cons so that my readers could make their own decisions about the possibility of a tax on carbonated beverages.

Pro: Fight Obesity

One of the most prominent arguments for instituting a national soda tax is to provide incentive for Americans to eat and drink healthier products and thus decrease obesity. There are numerous medical associations that have publicly announced their support of taxes on sugary beverages and some have even conducted studies to examine the potential health benefits of such a tax. A study conducted between the years 1985 and 2006, involving over 5,000 patients, showed a direct correlation between higher soda prices and the average daily caloric intake of Americans. Their study found that when the cost of a can of soda increased by 10%, the average patient consumed 7.12% fewer calories per day.

Con: Little Affect on Obesity

For every expert standing behind a soda tax, there is another who opposes it. Although some studies link soda prices with caloric intake, other health experts claim that problems with moderate eating, and lack of physical activity are more to blame for the countries obesity problem than sodas. When discussing the issue Dr Pepper Snapple Group Inc (DPS.N) Chief Executive Larry Young even said "let's put warning labels on sofas, because that's where kids are sitting instead of (being) outside playing.”

Pro: Additional Federal Revenue

There is no denying the fact that the federal government is looking for ways to increase revenue. Currently, there are about a dozen local government agencies – including Kansas, Colorado, and the city of Philadelphia – that have or are likely to begin enforcing soda taxes. The soft drink industry takes in about $110 billion per year in American sales, and whether or not a soda tax will help improve the health of the country, it could generate additional federal revenue. With so much spending going on in Washington, Congress is considering almost anything to generate more revenue.

Con: Recycling Fees

A large reason that many government agencies are hesitant to institute soda taxes is the fear that it might have an effect on the tax levied on the cans, bottles, and glass containers that carbonated beverages are sold in. These taxes are used to promote recycling, not public health, and are not generally that controversial. However, some experts are worried that adding a soda tax, on top of a recycling fee, could cause consumers to question these taxes on recyclable containers.

Pro: Incentives for Soda Company

Even before soda taxes became a popular topic of conversation, PepsiCo and Coca-Cola have both been working on tactics to improve their appeal to the ever growing group of health conscious Americans. However, with soda taxes becoming a reality in dozens of places across the country, the pressure is on for soft drink makers to produce healthier products.

Recently, PepsiCo responded to this new demand by creating a Gatorade beverage with all natural coloring and flavoring to be featured in health stores later this year. The company has also announced long term plans to make all of their products healthier over the next decade. They will reportedly cut the average amount of sugar per serving by 25% and the saturated fat by 15% in all products.

Con: Consumer Rights

Like other “sin” taxes, many Americans are most upset by the idea of using a tax to promote public health. Consumers of carbonated beverages feel like it is their right to indulge in sugary beverages, and the lack of moderation exhibited by some does not mean the government should enforce a tax increase on every American. Additionally, in today’s tough economic times many families are struggling to put food on the table, and any taxes on these family’s grocery bill would surely be unwelcome.

Good Question: Do Sin Taxes Really Work?

Sin taxes – such as those levied on cigarettes and alcohol – are frequently the subject of debate by tax experts because they try to serve two different purposes. First of all, they are a great way to generate revenue, but they also work to discourage certain behaviors. WCCO.com recently published a great piece on whether or not sin taxes actually work. Check out a section of their article below.

Government often uses the tax code to encourage and discourage certain behaviors. And budget times have state and federal governments looking for money. That combination has renewed interest in the idea of new sin taxes on soda and junk food. But do sin taxes work?

"The research around tobacco has shown that large increases on taxes on cigarettes has been the single most effective policy to reduce tobacco use," said Mary Story, a dietitian and public health professor at the University of Minnesota.

Story published a brief analyzing the impact and effectiveness of sin taxes, concluding that a 10 percent increase in sugar-sweetened beverage prices could cut consumption by 8 percent to 10 percent.

Story also wrote that "a few studies have concluded that, in response to changes in relative prices, some consumers will substitute a healthier beverage for an SSB. For example, a study conducted in 2004 found that increases in SSB prices resulted in small increases in consumption of whole and reduced-fat milk, juice, coffee and tea."

However, tracking the success of sin taxes is difficult. Advocates who are against smoking and alcohol abuse point to tax increases as a strong factor in reducing consumption. The American Lung Association says a 10 percent increase in cigarette taxes is strongly correlated with a 7 percent decrease in youth smoking.

Why the U.S. needs a Value Added Tax

A few months ago I mentioned the possibility of a Value Added Tax (VAT) being created in the U.S. to help increase Federal revenue. It looks like the issue is getting more attention, according to this new article on Reuters.com by Christopher Swann. In the article Swann suggests that a VAT could pay for health care reform, and provide enough revenue to lower tax rates across the board. Check out the text of the article below.

Swelling deficits and an aging population leave few palatable options when it comes to taxes. The best choice by far would be the creation of a new value added tax — a “money machine” that can bring in huge sums with relatively little effort. America is alone among rich nations in not charging a VAT, and its continued unwillingness to do so will make it harder to cope with the fiscal challenges ahead.

Giving birth to a new tax will certainly not be an easy sell. The stunning 1980 reelection defeat of Al Ullman, the powerful chairman of the House Ways and Means Committee who had advocated a VAT, is still a warning to American politicians.

The timing of a new tax on consumption may also seem suspect. Aren’t we supposed to be getting Americans back into the malls?

VAT, however, is worth the risk. It could yield enough money to pay for healthcare reform, as well as a meaty cut in income tax and a reduction in the deficit. It could also be done without destroying Obama or the Democrats.

Unlike taxing the rich — which has emerged as a favorite strategy of many Democrats — a VAT is extremely easy to collect. This is partly because it is gathered from each producer in a chain.

The Pros and Cons of Loan Modifications

As announced by this new press release, my law firm has begun offering loan modification services in addition to tax debt resolution. As the country’s economy continues to lag, and more and more jobs are being cut, thousands of families are turning to loan modifications to stay in their homes. Unfortunately, there is a lot of confusion in the industry, so to help my blog readers who might be considering a loan modification I have put together the following list of pros and cons.

Pro: Avoiding Foreclosure

For many families, the biggest incentive to get a loan modification is to avoid being forced into foreclosure or even bankruptcy. By modifying the terms of your loan, you can reduce your monthly payments without loosing your home.

Con: Confusing Process

The loan modification process is actually more like a tangled web of arguments, negotiations, and presentation of evidence. It can take months to reach any type of settlement, and involves dozens of phone calls, countless letters, and hours of direct negotiation. Fortunately, if you hire a professional then they can handle all of this on your behalf.

Pro: Professional Help

As I mentioned before, modifying the terms of your loan is a confusing process. However, by hiring a professional you can relax while some one else fights with your lender to renegotiate the terms of your loan. Additionally, a professional loan modification company will have more experience with the process, and can often obtain better settlements then a consumer could negotiating on their own. For more information on the loan modification services offered by my law firm, checkout this page on RoniDeutch.com.

Con: Time Consuming

Loan modifications can take weeks, or even months depending on your bank or lender. For this reason, you should begin the loan modification process as soon as you realize that you can no longer afford to make your mortgage payments. If you wait until the foreclosure process has already begun, then it can make modifying your loan more difficult.

Pro: Affordable Monthly Payments

The main goal of a loan modification is to reduce your monthly payments so that you can afford to stay in your house. This can be done either through reducing your principal amount, or reducing your interest rate. Either way, the end result is an affordable monthly payment.

Con: Affect on Credit

Although a loan modification itself will not impact your credit, missed mortgage payments will. Therefore, if it takes a few months to negotiate a loan modification and you accidentally miss a mortgage payment then it will hurt your credit.

Pro: Cancelled Debt is NOT Taxable

Unlike cancelled credit card debt, the IRS does not consider cancelled mortgage debt taxable income. Therefore, if part of your loan modification includes a reduction of your principal loan amount, then you will not need to worry about paying taxes on it. For more information on the topic, check out this entry on the Roni Deutch Tax Relief Blog titled Tax Implications of Mortgage Loan Modifications.

PRO and CON: Should I Buy a House in 2009?

The real estate industry in this country is in shambles. It has created a great opportunity for any one that can afford to purchase a home. Not only have prices plummeted over the past five years, but both Federal and State agencies are also providing incentives to help taxpayers make the big leap. Although there are plenty of good reasons to buy now, getting into a mortgage during a nation-wide recession might not be in the best interest of every single American. To help those of you trying to decide if you should buy a home this year, I have put together the following list of reasons TO and NOT TO buy a house in 2009.

PRO: Tax Credits

To encourage home buying, the Federal government is offering all taxpayers a one-time tax credit for first-time buyers who purchase a home before the end of 2009. The credit is for $8,000 (or 10% of the sale price), and—unlike last year’s incentive—it is a direct credit and does NOT need to be repaid.

In addition to the Federal tax credit, numerous state and local government agencies are also offering incentives. For example, here in California there is a $10,000 credit for the purchase of a new construction home. The specific rules and amounts will vary by your location, so be sure to ask your agent and/or lender for more information on the incentives you might qualify for.

CON: Prices still dropping

Although some experts predict the economy will begin rebounding at the end of 2009, many are saying that the real estate market will not follow as quickly. Real estate prices are actually still dropping. Financial analysts insist they may continue to drop for another year, which could lower the value of any home you might buy. However, if you are looking to buy a house in the near future, then make sure you do not wait too long. Also, remember that can take months to complete the purchase of a home.

PRO: Population Demographics

Some economists are looking past the economy towards population demographics to predict the housing market. Many believe the "Baby Boomer" generation’s children are beginning to become of-age to purchase homes, which could contribute to the increased activity in real estate industry. Called "Generation Y," they are typically between the ages of 20 and 30, with well paying jobs in the technology field. As the real estate industry begins to bottom out, experts are predicting that Generation Y will begin purchasing homes at a rapid rate.

CON: You may get stuck

If you are the type of person who only wants to occupy their home for a few years or do not like to feel tied down, then now may not be the best time to invest in a new home. The value of any home purchase in the immediate future is likely to depreciate over the next year. Then add in closing costs and agent fees, and you might be stuck unable to sell your home. Remember, that purchasing a house is a big investment, and you may have to hold onto it for five years or so to turn a profit.

PRO: Recession’s End

As I mentioned before, many analysts are predicting that the economy will begin to rebound at the end of this year. Although the real estate market is not expected to bounce back quite as fast, this does mean your chances of getting a loan may increase. When the economy begins to improve more and more banks will feel more comfortable lending, and home loans will become more accessible to Americans again.

CON: Loan Qualification

Getting a loan for a new home is not as easy as it used to be. Banks are lending more than they were six months ago, but they now include harsher credit checks, more paperwork, and un-estimated deadlines. Paired up with ever-dropping prices, this can be a huge incentive to wait another year or so, when loan qualification is supposed to become somewhat easier.

The Pros and Cons of Refund Anticipation Loans

In this economy, quick cash is in high demand. However, it is never a good idea to get into a new loan or financial venture without properly researching the topic. During tax season refund anticipation loans become popular as they allow you to borrow against a potential tax refund. However, these loans can be either good or bad depending on who you are and why you want one. To help decide if a refund anticipation loan is right for you, we have put together the following list of pros and cons.

Pro: Instant Cash

If you are low on cash and cannot wait for your refund to pay off some bills, a refund anticipation loan could certainly fill that role. While cash advances on a paycheck could pay for small bills that are due very soon, if you have a larger sum to pay off and no other way to do so, a refund advance loan could be very helpful.

Con: Interest and Fees

Unfortunately, the interest ad fees associated with these types of loans can be quite high. This is mostly due to the fact that the loan itself does not come from the preparers handling your taxes. Although you typically apply for and receive the loan through at a tax preparer’s office, they almost always outsource to third party lending banks.

Pro: Short Processing

As opposed to other large loans, a refund anticipation loan has a short application and approval process. Normally processing will take no more than a day, and the loan can be distributed within 24-48 hours. In comparison, traditional loans can take weeks to be approved and distributed.

Con: Payment Responsibility

Like with any loan, you are ultimately responsible for repaying the bank for the money they lent you. Therefore, if for any reason the lending bank does not receive the amount the full amount of your refund from the IRS then you will be held responsible for the difference.

Pro: No Tax Prep Fees

Usually if you decide to get a refund anticipation loan the tax preparer will deduct the cost of their services from your refund. This can be a great option for those who might not otherwise be able to afford the fees associated with professional tax preparation.

Con: Lack of Loan Education

Unfortunately, hundreds of people take advantage of refund anticipation loans every year without fully understanding their options. As with any major financial transaction you always want to carefully consider the pros and cons before making a decision, and when it comes to refund anticipation loans if you do not need the funds right away then you would probably be better off waiting for a check from the IRS.