The Blur Between Spending and Taxes

While Congress is getting back to work, and deficit reduction is a high priority, there’s a lot of rhetoric being bandied about. Spending cuts and tax cuts are a big focus. But what does it really mean? The NY Times tries to deep dive to see what the big difference really is.

From NYTimes.com:

Should the government cut spending or raise taxes to deal with its long-term fiscal imbalance? As President Obama’s deficit commission rolls out its final report in the coming weeks, this issue will most likely divide the political right and left. But, in many ways, the question is the wrong one. The distinction between spending and taxation is often murky and sometimes meaningless.

Imagine that there is some activity — say, snipe hunting — that members of Congress want to encourage. Senator Porkbelly proposes a government subsidy. “America needs more snipe hunters,” he says. “I propose that every time an American bags a snipe, the federal government should pay him or her $100.”

“No, no,” says Congressman Blowhard. “The Porkbelly plan would increase the size of an already bloated government. Let’s instead reduce the burden of taxation. I propose that every time an American tracks down a snipe, the hunter should get a $100 credit to reduce his or her tax liabilities.”

To be sure, government accountants may treat the Porkbelly and Blowhard plans differently. They would likely deem the subsidy to be a spending increase and the credit to be a tax cut. Moreover, the rhetoric of the two politicians about spending and taxes may appeal to different political bases.

But it hardly takes an economic genius to see how little difference there is between the two plans. Both policies enrich the nation’s snipe hunters. And because the government must balance its books, at least in the long run, the gains of the snipe hunters must come at the cost of higher taxes or lower government benefits for the rest of us.

15 Things You Shouldn't Be Paying For

In the past few years, many Americans have been forced to tighten their personal budgets. However, as this article from Yahoo! Finance there are a lot of things you are probably paying for that you do not necessarily need to. You can find a snippet of their article below, or read the full text here.

So much money and energy is wasted on things we could get for free. If you're into new, shiny things and collecting stuff, this is not for you. But if you want less clutter in your life and want to keep more of your money, then check out these 15 things you shouldn't be paying for.

Basic Computer Software -- Thinking of purchasing a new computer? Think twice before you fork over the funds for a bunch of extra software. There are some great alternatives to the name brand software programs. The most notable is OpenOffice, the open-source alternative to those other guys. It's completely free and files can be exported in compatible formats.

Your Credit Report -- You don't have to pay for your credit report. You could sign up for one of the free credit monitoring services online to get a quick look at your credit report. You just have to remember to cancel the service before the end of the free trial. Or you could do one better and visit www.annualcreditreport.com, the only truly free place to see all three of your credit reports for free once a year.

Cell Phone -- The service plan may be expensive, but the phone itself doesn't have to cost a thing. Most major carriers will give you a free phone, even a free smart phone, with a two-year contract.

Books -- There's a cool place in your town that's renting out books for free: the library. Remember that place? Stop by and put your favorite book on reserve. And if you don't feel like getting out, visit www.paperbackswap.com and find your books there (small shipping fees apply).

California Exhausts $100 Million in Film Tax Credits for Year

Less than three months into the new fiscal year, my home state of California has reportedly already exhausted its entire $100 million film and television tax credit budget. They have provided credits to over 30 different projects already.

BusinessWeek.com reports:

Additional subsidies, designed to keep movie jobs in the state, won’t be available until July 2011, Amy Lemisch, executive director of the California Film Commission, said in an interview. About 45 productions are on a waiting list.

California is competing with states including New York, New Mexico and Louisiana that also offer incentives to attract movie and television production. California offered tax breaks for the first time in fiscal 2010. Demand increased with awareness of the program, Lemisch said.

New York offers $420 million a year in incentives, according to the website for the state’s Office for Motion Picture & Television Development.

The California incentives can cover 20 percent to 25 percent of a movie’s production budget, according to the California Film Commission website.

Read more here

Latest Budget Extender Includes Tobacco Taxes

According to an article on msnbc.com, lawmakers in Albany, New York will soon vote on an emergency spending plan in hopes of avoiding a government shutdown. The New York state budget is 80 days late; a large tax increase on tobacco products totaling $290 million is included in the latest bill. For example, the tax on a pack of cigarettes would go from $2.75 a pack to $4.35 a pack. Should the bill pass, the new taxes would take effect September 1. Because all State Republicans have indicated that they would vote ‘no’ on any tax increases. In order to pass, the bill would require all 32 Senate Democrats to vote ‘yes’.

What are your views on “sin taxes” such as these? Comment on my Facebook page or message me on Twitter @ronideutch!

BP's Open Wallet

After BP announced they had spent more than $1 billion on efforts related to gulf oil spill, many Americans have begun asking where all that money has gone. To help confused consumers CNN Money has put together a slideshow describing how BP has spent their $1 billion. Check out the full article and accompanying slides here.

Local advertising campaigns

Gulf States are doing all they can to bolster their tourism industries, which have been hammered by the oil spill -- and BP is footing the bill.

In Panama City, Fla., for example, the tourism development board is getting about $1.1 million from BP to spend on television and digital billboard advertising to assure the public that its local beaches remain pristine.

"The campaign's focus is on getting the word out that the Panama City beach hasn't been impacted by the oil spill, that our beaches are clean and the water is clear," said Dan Rowe, president and CEO of Panama City Beach Convention and Visitors Bureau.

Rowe said that the Bureau requested $2.2 million, but has so far received half. The remaining distribution hinges on the other clean-up needs of the state.

Highlights of House Tax and Spending Bill

On Friday, the House of Representatives passed a new tax and spending bill. Over the weekend the Associated Press published a list explaining the changes that would occur if the legislation were signed into law. You can find a few of the highlights below, or read the full article on Google News.

• Extends for one year about $32 billion in tax breaks that expired in January, including a property tax deduction for people who don't itemize, lucrative credits that help businesses finance research and develop new products, and a sales tax deduction that mainly helps people in states without income taxes.

• Increases taxes on investment and hedge fund managers, venture capitalists and many real estate investment partnerships by $18.7 billion.

• Increases taxes on oil companies by $11.8 billion by raising from 8 cents a barrel to 34 cents a barrel the tax they pay into the Oil Spill Liability Trust Fund.

• Raises taxes on multinational companies some $14.5 billion by limiting their ability to use credits for paying foreign taxes to lower their U.S. tax liability.

• Imposes $11.2 billion in new Medicare taxes on lawyers, doctors and other service providers.

Economic Outlook Is Cautious Even With Spending Up

From The Associated Press:

Factories are churning out more goods. Consumers are spending. Government aid is fueling construction activity. But stagnant pay and weak hiring will likely restrain the economic rebound in coming months.

That cautionary picture emerged from a series of economic reports Monday.

Consumers stepped up their spending in March by the largest amount in five months. Yet the increase was financed out of savings. Incomes rose only slightly.

Unless employers boost pay and ramp up hiring, economists say consumer spending will likely taper off and dampen the recovery.

The construction industry remains a concern, too. Industry spending rose 0.2 percent in March, the first increase in five months, Commerce said. But all the strength came from government activity — much of it related to temporary stimulus money that's expected to run out soon. By contrast, construction by the private sector fell to the lowest level in a decade.

One sector that's helping drive the recovery is manufacturing. Factory activity in April grew at the fastest pace in nearly six years, according to the Institute for Supply Management, representing purchasing executives. Its manufacturing index rose to 60.4 in April from 59.6 in March — the ninth straight month of growth. A level above 50 indicates expansion.

10 Tax Friendly Ways to Spend your Refund

According to the IRS the average tax refund last year was over $2,500. I always encourage taxpayers to do something smart with this money, and it is never too early to begin planning for next tax season. If you use your refund in one of the following ten ways, then you can get a head start on lowering your 2010 tax liability.

1. Put the Funds into a Traditional IRA

When you file your tax return you have the option to have your refund split between up to three different accounts. You can even have funds electronically transferred to a tax friendly traditional IRA. You can use these contributions to lower your adjusted gross income for the year.

2. Purchase Inflation-Adjusted Savings Bonds

In addition to transferring funds to a retirement account, the IRS has recently began allowing taxpayers to use a portion of their refund to buy inflated adjusted saving bonds, commonly referred to as I Bonds. The government makes this process easy, all you have to do is fill out IRS Form 8888 and designate how much of your refund you want to invest in I Bonds. They are exempt from state and local taxes, and federal taxes are deferred until you redeem the bond.

3. Use the Money for a Down Payment on a House

We all know there are multiple tax advantages of homeownership. You can write off mortgage interest, deduct property taxes, and many homebuyers qualify for IRS credits of up to $8,000. If your refund is large enough, you could use it as a down payment on a house. If you do qualify for a new homebuyer credit then you can even use the funds to help cover your closing costs.

4. Make Energy Efficient Upgrades to your Home

If you already own your home then you might want to consider making energy efficient upgrades to your house. In addition to increasing the value of your property, many upgrades qualify for tax incentives. To find out the exact amounts, check out EnergyStar.gov.

5. Make a Donation to a Qualified Charity

You can easily donate a portion of your tax refund to a qualified charity to directly reduce your adjusted gross income. Even if you cannot afford to make a large monetary contribution all miles driven to, from and during volunteer work are deductible expenses, as well as any goods or supplies you purchased while volunteering.

6. Invest in Yourself

Instead of investing your money into a retirement account you could invest in yourself and take a class at a local university. Depending on your income level the American Opportunity Tax Credit could cover the cost of up to the first $2,500 in qualifying tuition and related expenses.

7. Buy a Qualifying Hybrid

Although popular cars such as the Toyota Prius no longer qualify for the Alternative Motor Vehicle Credit, there are plenty of vehicles that do—Including the Ford Fusion Hybrid, which qualifies for a $3,400 credit.

8. Open a 529 College Savings Fund

Contributing to a 529 College Savings Plan is another smart use for your IRS refund. Similarly to a Roth IRA, you do not have to pay taxes on the interest that accumulates in the account.

9. Buy New Office Computers or Equipment

If you are self-employed or own a small business then you can use your refund to purchase new office computers, furniture, equipment, or just about anything else that qualifies as a business expense. Just be sure to save all of your receipts!

10. Purchase a Health Insurance Plan

Those of you who are self-employed taxpayers can also take a deduction for your health insurance expenses. I recommend purchasing your plan now so that you can use your refund to pay for a majority of the yearly premium, which will lower your monthly payments.

Fewer Taxpayers to Pay Off Debt with Refunds

Earlier this week the National Retail Federation (NRF) revealed that the number of Americans likely to pay off a debt with their tax refunds this year has gone down by about 4%. In 2009 it was estimated that 48% of Americans would use their tax refunds to pay off debts, but this year the number has dropped to only 44%. As this Biz Journal article explains, the main reason for the drop is that fewer US taxpayers are expecting to receive a refund this year.

According to those polled, fewer taxpayers are expecting a refund – 65.5 percent this year, compared to 68.4 percent last year.

“A little bit of ‘free money’ will go a long way for Americans this year,” said Tracy Mullin, president and CEO of the NRF. “Retailers planning special promotions over the next few months may find that shoppers are a bit more receptive to opening up their wallets than they have been for the past year.”

NRF said only 12.5 percent of those polled plan to treat themselves or their families with a major purchase with the refund, which is up from 11 percent last year. More than 40 percent plan to save it, nearly 29 percent will put it toward everyday expenses and 10 percent will use it for vacation.

Online filing is becoming more popular across the country, with more than 54 percent planning to file via Internet, compared to more than 50 in 2007.

Continue reading at Biz Journals.com…

Hey, Big Spender: Bundle's Gender Breakdown

Although most people believe the stereotype that women shop more than men, Bundle.com used a new research tool and discovered that single men outspend single women in almost every category. Although men statistically make about 25% more then women in this country, according to the Institute for Women's Policy Research, this article from MSN Money.com asserts that even among similar income levels, men still outspend women.

Men spent about 19% more than women on food and 16% more on travel. Their insurance bills were higher, they paid more for school-related expenses, even their phones cost exceed that of women. Hey, I guess you've got to keep the bromance alive.

Look closer, and some of the trends suggest real differences in the ways single men and single women live their lives. They spent almost exactly the same amount of money on groceries, but men spent 45% more on eating out than women. Perhaps men are still picking up the check, or maybe women are more likely to cook.

And while it's not so surprising to learn that women spend more on clothes or what Bundle calls "personal care" -- spas, salons and the gym, among other expenses -- women's monthly spending on their pets tops men's by 57%.