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How To RAISE Social Security Benefits Now

Peter G. Miller — Tue, 05 Apr 2011 12:38:43 +0000

Social Security is much in the news with claims that it’s going bankrupt and cries that benefits must be cut. But that isn’t the case, in fact if everyone simply paid their fair share of the costs — if bosses paid as much of their income as their workers — benefits could be maintained or even increased without raising Social Security tax rates.

Don’t believe it? According to the nonpartisan Congressional Research Service, “If
all earnings were subject to the payroll tax, but the base was retained for benefit calculations, the Social Security Trust Funds would remain solvent for the next 75 years.”

How It Works

Social Security is a regressive tax. That means the more you make the less you pay. Social Security is funded with taxes paid on the payments of wages for services performed as an employee — but not all wages and certainly not all income.

For 2011 the rates look like this:

2011 Social Security Tax Rates
Worker	4.2% on earnings up to $106,800
Employer	6.2% on earnings up to $106,800
Self-Employed Workers	10.4% on earnings up to $106,800
Source: Social Security Administration

If you look at the table above you can see the source of Social Security funding problems — and the gross unfairness of the system. Simply put: The households with the most money pay the lowest Social Security taxes relative to income.

Earnings

The term “earnings” for Social Security purposes does not mean all the money someone earns. It means the wages received for labor but generally not dividends, interest, rent, royalties or capital gains.

Why is this important? Imagine you’re a self-employed real estate broker, computer programmer, carpenter, plumber or attorney. You have a net taxable income of $100,000. Of this amount you must pay $10,400 for Social Security. (The self-employed pay 10.4 percent because there’s no employer to pay a portion of the tax.)

Now imagine that the Johnsons receive $100,000 in dividends, interest, rent, royalties or capital gains. Their Social Security tax on such income is zero, so the Johnsons have $10,400 more than someone who sells, programs, saws, plumbs, sues or whatever because monied interests have better lobbyists on Capitol Hill than workers.

Percentages

The table shows that in 2011 the Social Security tax is applied to the first $106,800 in income. For most workers this means the Social Security tax applies to 100 percent of their income. According to the Census Bureau, in 2009 — the latest year for which we have statistics — the median household income was $49,777. And remember that in a “household” we can have more than one wage earner.

Imagine that Smith makes, oh, $50,000 a year as a self-employed daycare operator. The Social Security tax is $50,000 x 10.4 percent or $5,200.

Now imagine that Jones makes $250,000 as a consultant. Jones pays 10.4 percent x $106,800 or a total of $11,107 in Social Security taxes.

Jones plainly pays more in cash than Smith — but then Jones has five times as much income and will receive a vastly larger Social Security pension when he retires. His effective Social Security rate is 4.4 percent — less than the rate paid by his maid or the person who mows his lawn.

But Isn’t Social Security Broke?

Social Security is not broke now and it will not be broke for decades. This year, 2011, it’s expected to produce $121.3 billion in net interest.

“The Social Security Trust Fund currently holds approximately $2.6 trillion and can pay full benefits through 2037,” says Rep. Xavier Becerra (D-CA), ranking member on the House Subcommittee on Social Security.

What About The Deficit?

Federal spending, deficits and surplus figures do not include money paid into the Social Security.

“By law,” says Rep. Becerra, “Social Security can only spend what it has: the contributions workers make from their paychecks, the bonds purchased with those contributions, and the interest earned on those bonds. By law, Social Security cannot contribute to the federal deficit (Chapter 7, Subchapter II, Section 401(h) of the Social Security Act).”

Why Not Privatize Social Security?

If Social Security were privatized big Wall Street banks and brokerages would be able to extract billions of dollars in fees and charges from the retirement accounts of all Americans — meaning there would be an expense where now there is none. More important, unlike Social Security and its guaranteed payments, putting retirement money in the stock market is hardly a sure thing.

According to the Federal Reserve corporate equities were worth $9.643 trillion in 2006 — and $8.514 trillion in the fourth quarter of 2010, a loss of more than a trillion dollars.

How Much Will I Get?

You can estimate your benefits by using the government’s Social Security calculator, but until you look at the numbers don’t make a down payment on a yacht just yet. The typical monthly check is paltry: According to the Pension Rights Center in 2009 the average annual benefit for retired workers was just $13,836 while the typical benefit for couples was $22,512.

What If All Wages Were Taxed?

The Congressional Research Service points out that if the Social Security tax was applied to incomes above $106,800 the actual rate could be reduced.

“Raising the taxable earnings base would lead to an increase in total federal revenues. The Joint Committee on Taxation has estimated that raising the wage base to 90% of earnings, to $186,000 in 2008, would generate $221 billion in additional revenue over the five-year budget window of 2008-2012. Over 10 years, the policy would generate more than $524 billion.”

The obvious point is that if all wage income is taxed and benefits were limited to a reasonable maximum there would be no need to reduce Social Security benefits. Indeed, so much money could be generated the actual tax rate could be lowered for everyone.

“If the base was completely eliminated for both employers and employees so that all earnings were taxed, but those earnings did not count toward benefits, solvency would be restored to Social Security. The increased revenue would eliminate 115% of the projected shortfall and the program would have a projected surplus equal to .28% of taxable payroll. Under this scenario, the payroll tax rate could be immediately lowered from 12.40% to 12.12% and the system would remain solvent for the next 75 years. However, the traditional link between the level of wages that is taxed and the level of wages that counts toward benefits would be broken.”

Notice that we’re still talking about a payroll tax — no one is being asked to pay Social Security taxes on their dividends, interest or capital gains. The rich will still have an advantage, but merely less of an advantage.

And notice one other point: If all payroll income was taxed we could keep the Social Security tax rate where it is — and raise monthly benefits for the elderly.

An Entitlement Program For The Rich

What’s being discussed here will be described by critics as, oh my, a tax increase. What’s being ignored, what will not be mentioned, is the imputed government subsidy now being paid to upper-income households in the form of lower Social Security rates and no Social Security rates. In effect, the tax not paid or underpaid is an entitlement program for the rich.

The issue, as I have said on Patrick.net, is not the rich versus everyone else, but rather a mindset which says there can never be enough personal wealth even if other people are impoverished and hurt. With such thinking it’s okay to reduce Social Security benefits if only to keep taxes low. The term “reduce Social Security benefits” is a polite way to say that some are willing to have elderly people live out their last years deciding whether their few dollars should be spent on food or rent.

Alternatively, many who are rich would readily accept higher taxes — think of Bill Gates and Warren Buffett — because they understand that higher taxes are cheap when compared with the cost of social anarchy.

“There’s class warfare, all right,” Warren Buffett told the New York Times, “but it’s my class, the rich class, that’s making war, and we’re winning.”

Even the King of Saudi Arabia gets this concept. According to Human Rights Watch he recently increased benefits to Saudi citizens with a “$35 billion package of financial assistance to the unemployed and support for first-time home buyers,” meaning he has $35 billion less but, he hopes, also less social discontent. It’s just a guess, but the betting here is that he will not miss a meal — or close a palace.

Paying For The Benefits of America

There is — and there must be — a cost for those who want access to the vast American marketplace and the security of American society. If you’ve traveled overseas you know that the cost to be an American is entirely worthwhile, especially if you have been to poor or nondemocratic countries.

But the cost to operate our national government is now being paid disproportionately by the poor and the middle class, an arrangement which will inevitably corrode if people don’t feel they’re vested in the system — or doubt that the system is vested in them.

You can already see this. Consider the erosion of social and financial norms represented by the large number of people walking away from their homes and their mortgages, people who do not fear bankruptcy or foreclosure.

“Leaving aside the ethical question of deliberately defaulting, not making mortgage payments has left more money in the pockets of Americans,” says Barron’s. (See: Foreclosures Boost Incomes? March 30, 2011)

Whoever heard of such a thing 10 years ago? As Kenneth Lewis, a former CEO with the Bank of America, explained to the Wall Street Journal, “we’re seeing people who are current on their credit cards but are defaulting on their mortgages. I’m astonished that people would walk away from their homes.” (See: Now, Even Borrowers With Good Credit Pose Risks, December 19, 2007)

If Mr. Lewis were on the other end of the financial spectrum perhaps he would be less amazed. Or, he might consider the words of a former President:

“My position as regards the monied interests can be put in a few words,” said Teddy Roosevelt. “In every civilized society property rights must be carefully safeguarded; ordinarily and in the great majority of cases, human rights and property rights are fundamentally and in the long run, identical; but when it clearly appears that there is a real conflict between them, human rights must have the upper hand; for property belongs to man and not man to property.”
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Copyright 2011 Peter G. Miller, All Rights Reserved. For permission to re-print or re-post this commentary in whole or in part send email to OurBroker.

How To RAISE Social Security Benefits Now is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

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A Basic Guide To Real Estate, Mortgages & Taxes

Peter G. Miller — Wed, 11 Nov 2009 04:33:00 +0000

Let’s be honest: April 15th is a day of reckoning, the moment when we find out what we really owe for taxes. In households nationwide wallets are drained and many who were rich on the 14th are greatly impoverished by the 16th.

But for those with real estate the load is made lighter by tax rules which encourage the ownership of homes and investment property. Such rules are not only good for homeowners, they’re also good for the country: About 20 percent of all economic activity nationwide is related to real estate, so policies which encourage real estate activity help everyone.

It seems that almost every year changes to the tax code require the production of new forms and a re-education process. That said, the real estate basics remain in place and they’re good news for buyers, sellers, borrowers and owners.

Mortgage interest is generally deductible.

The IRS says there are three categories of deductible home mortgage interest:

Mortgages you took out on or before October 13, 1987 (called grandfathered debt).
Mortgages you took out after October 13, 1987, to buy, build, or improve your home (called home acquisition debt), but only if throughout 2005 these mortgages plus any grandfathered debt totaled $1 million or less ($500,000 or less if married filing separately).
Mortgages you took out after October 13, 1987, other than to buy, build, or improve your home (called home equity debt), but only if throughout 2005 these mortgages totaled $100,000 or less ($50,000 or less if married filing separately) and totaled no more than the fair market value of your home reduced by (1) and (2).

Substantial profits can be sheltered when a prime residence is sold.

When a prime residence is sold, up to $500,000 in profits can be sheltered from federal taxes if married, $250,000 if single, providing the home has been used as a prime residence for two of the past five years. Generally this deduction cannot be used more than once every two years, according to the IRS.

There are also provisions which may be helpful to individuals who must sell a prime residence in less than two years. Under the 2004

safe harbor rules, individuals may be able to get some capital gains relief under certain circumstances, such as being forced to move because a job has been relocated at least 50 miles or a home that must be sold because of multiple births resulting from the same pregnancy.

Also, individuals in the Armed Forces and the Foreign Service may be entitled to special consideration under the Military Family Tax Relief Act of 2003 (MFTRA). For instance, you may have longer to take a capital gains deduction or to amend a tax return. There are other provisions under MFTRA that also may be helpful, so check with a tax professional for specifics.

Lastly, please see the information below regarding the new tax credit of up to $6,500 which is available to certain owners who obtain a contract to buy their current residence before April 30, 2010 and close before June 30, 2010.

Points may be deducible by both buyers and sellers.

Picture a situation where a home is sold for $500,000 and the owner — to help close the sale — offers to pay 1 point for the buyer. If the property was financed with a $350,000 mortgage, a point would be worth $3,500. According to the IRS, “the seller cannot deduct these fees as interest. But they are a selling expense that reduces the amount realized by the seller.”

Interestingly, in this situation the buyer can also deduct the points when the home is sold.

“The buyer,” says the IRS, “reduces the basis of the home by the amount of the seller-paid points and treats the points as if he or she had paid them.”

In effect, the seller gets to write-off the $3,500 cost by reducing any profit from the sale. The buyer essentially lowers the purchase price of the property when the home is sold at some point in the future — thus increasing the size of any profit. However, since up to $500,000 in sale profits may be untaxed, most buyers will effectively never pay a tax on the seller’s contribution for points.

If a prime residence is refinanced then the deal with points is different: The expense of a point must deducted over the life of the loan. If the home is sold before the loan term ends, then any cost not deducted for points can be used to reduce owner’s profit from the sale.

Home offices may be deductible.

If a portion of your home is used regularly and exclusively as your principal place of business or for the convenience of your employer it may be possible to write off a portion of such costs as mortgage interest, property taxes and utilities. There are a number of tests which must be met to take this deduction, see IRS Publication 587, Business Use of Your Home for details.

In some cases there may be tax advantages associated with not deducting your home office in the year or two before you move. Speak with a tax professional for specifics.

Mortgage insurance premiums may be deductible.

Mortgage insurance premiums should be deductible. The catch? Not all premiums are deductible by all borrowers. In general, the rules look like this:

The deduction applies to loans made after January 1st, 2007.
The deduction applies to both private mortgage insurance (MI) as well as mortgage insurance through the Federal Housing Administration (FHA), the Veterans Department (VA) and the Rural Housing Administration.
The deduction applies to acquisition indebtedness, meaning debt used to acquire a home.
If you refinance remaining “acquisition indebtedness” then you can write off mortgage insurance on the new debt.
You can take the deduction if you’re married, file jointly and have a gross adjusted income of $100,000 or less. If you’re single or married and filing separately the income limit is $50,000.
The deduction phases out once income limits are passed. For married couples, the deduction is reduced by 10 percent for each $1,000 in income over $100,000. This means there is no deduction for incomes above $110,000. For singles and those married and filing separately, the deduction is reduced by 10 percent for each $500 in additional income — this means there is no deduction above $55,000.
The mortgage premium write-off begins January 1, 2007 and is scheduled to end December 31st, 2010. However, the program is likely to be extended.
Speak with a tax professional for specifics.

Natural Disasters

The Katrina Emergency Tax Relief Act of 2005 provides extensive tax benefits and assistance to those who were victims of hurricanes Katrina, Rita and Wilma. For details, go to the IRS Katrina relief page or call 1-866-562-5227.

If you have been in a natural disaster — a flood, hurricane, tornado, etc., contact your local congressional office to see if special tax help is available. Links to congressional offices can be found by pressing here.

Mortgage Forgiveness Act

Traditionally if you do not pay a mortgage in full any money not paid is regarded as “imputed” income — income which is taxable. However, with the passage of the Mortgage Forgiveness Debt Relief Act of 2007, a bill sponsored by Rep. Charles Rangel (D-NY), if you can negotiate a partial pay-off with a lender, the amount forgiven will not be taxed by the federal government.

This legislation makes sense because people who have lost their homes, been foreclosed or gone bankrupt have no money to pay. However, the maximum write-off is limited to forgiveness worth no more than $2 million (not a problem for most folks) and — more importantly — the rule applies only to a principal residence.

Some questions to ask: When does this law end? Are home equity loans covered? What about state rules?

$8,000 Tax Credit For First Time Buyers Extended Until April 30, 2010

Under the FHA reform package passed by the Congress during the summer of 2008, first-time home buyers could be entitled to a tax credit equal to 10 percent of the purchase price of the residence. This credit is limited to $7,500 for married couples and single taxpayers but can be no more than $3,750 for married individuals filing separately.

Since most homes are valued at more than $75,000 the credit will likely be used up with the purchase of a home or condo. The property must be occupied after April 9, 2008 but before July 1, 2009 to qualify. Also, a “first-time” buyer is defined as someone who has not held title to real estate for at least three years. The credit phases out for married couples earning above $150,000 a year and for singles earning more than $75,000.

The catch.

The $7,500 is a credit against taxes due to Uncle Sam. If you owe $10,000 to the IRS you can deduct up to $7,500. But, when you sell the property the $7,500 must be repaid over 15 years — that’s just $500 a year at some point in the future.

Okay, it’s really a $7,500 loan — without interest and when you really need it.

2009 First-Time Homebuyer Credit (Part 1)

In 2009 the deal changed. Under the American Recovery and Reinvestment Act of 2009 the credit amount was raised to $8,000 and NO repayment is required if a first-time homebuyer purchases a residence before December 1, 2009. There is still an income phase out and buyers must own their homes for at least three years.

2009 First-Time Homebuyer Credit (Part 2)

In November 2009 the deadline for the first-time homebuyer credit was extended under the Worker, Homeownership, and Business Assistance Act of 2009 from December 1, 2009 to include contracts made before April 30, 2010 and closed before June 30th.

Also, the income cap to get the full credit was raised from $75,000 if single or $150,000 if married to $125,000 for singles and $225,000 for joint filers. Above the $125,000/$225,000 levels the credit phases out to nothing at $145,000 for singles and $245,000 for couples.

New Credit for Existing Home Sellers

The November 2009 legislation also created a new tax credit for existing home sellers. In basic terms, if you have owned your home for five consecutive years out of the last eight you can get a tax credit for as much as $6,500. The contract to sell your replacement residence must be signed before April 30, 2010 and the deal must be closed before June 30, 2010.

For specifics regarding the November 2009 changes, speak with a tax professional and get a copy of IRS Form 5405. Also, see the IRS first-time homebuyer site for details regarding the new legislation.

Investment real estate can generate substantial write-offs.

If you own rental property you must seek a fair market rental for your property. You may generally deduct mortgage interest, property taxes, repair costs, management by an outside party, depreciation, advertising, insurance, utilities, legal services and other expenses.

It’s possible with rental properties to have both a positive cashflow and a loss for tax purposes. However, the ability to use real estate losses to reduce overall taxes may be phased out as income rises above $100,000.

If a rental involves relatives special rules and restrictions may apply. Check with a tax pro for details.

A 1031 exchange may allow investors to defer all capital gains taxes.

With a 1031 transaction, investment property is exchanged for “like” real estate. The basic requirements are that within 45 days after the “relinquished” property has been sold, a “replacement” property must be identified. The identified replacement property must then be acquired within 180 days after the sale of the relinquished property.

What’s important about a 1031 exchange is that the capital gains tax on the relinquished property is deferred — but it does not disappear. What really happens is that the basis for the new property (the “replacement property”) is reduced by the adjusted value of the “relinquished property” (the old property).

A 1031 exchange is complex and requires the services of a “qualified intermediary.” Among other tasks, a qualified intermediary holds the money from the sale of the relinquished property and applies it to the purchase of the replacement real estate. This must be done because under the rules for 1031 exchanges, the seller of a relinquished property cannot touch money from the sale — it must be held by the qualified intermediary.

Accounting for a 1031 exchange is also complex. Essentially there is a need to figure out the sale value of the relinquished property, add back depreciation and account for financing. Ed Horan, a well-known exchange authority and the author of How To Do a Like Kind Exchange of Real Estate, has posted a free 13-page exchanging guide with an accounting worksheet that’s well worth reviewing before meeting with a tax pro.

Death of a Spouse

The capital gains write-off for the sale of a home is $500,000 if married and $250,000 if single. But what happens if a spouse dies?

For years the rule has been that if the couple’s home was not sold by December 31, 2007 then the surviving spouse would be treated as a single home seller. In other words, the maximum write-off would go from $500,000 to $250,000.

There is a certain logic to this approach — and also a certain cruelty. If a spouse dies on November 30th the surviving spouse would have about four weeks to sell the home. This hardly seems right but now the rule has been changed.

Under new legislation passed by Congress, after December 31, 2007 surviving spouses will now have two years from the date of passing to sell the property and still qualify for the $500,000 write-off.

Gifts

For 2009 you can give someone as much as $13,000 per year, tax free. This is up from $12,000 in 2008. For gift information from the IRS, press here.

Sources and Publications

You can be certain that the information presented here is not a substitute for professional advice. As always with taxes, nothing is ever simple or easy. Speak with a qualified tax professional for specific advice — an enrolled agent, a CPA or an attorney who specializes in tax issues.

Also, the IRS itself has excellent information at its website, www.irs.gov, by phone at 1-800-829-1040 and with specialized publications such as those below:

A Basic Guide To Real Estate, Mortgages & Taxes is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

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2009 Real Estate, Mortgages & Taxes

Peter G. Miller — Wed, 11 Mar 2009 06:18:25 +0000

Mortgage interest is generally deductible.

The IRS says there are three categories of deductible home mortgage interest:

Mortgages you took out on or before October 13, 1987 (called grandfathered debt).
Mortgages you took out after October 13, 1987, to buy, build, or improve your home (called home acquisition debt), but only if throughout 2005 these mortgages plus any grandfathered debt totaled $1 million or less ($500,000 or less if married filing separately).
Mortgages you took out after October 13, 1987, other than to buy, build, or improve your home (called home equity debt), but only if throughout 2005 these mortgages totaled $100,000 or less ($50,000 or less if married filing separately) and totaled no more than the fair market value of your home reduced by (1) and (2).

Substantial profits can be sheltered when a prime residence is sold.

There are also provisions which may be helpful to individuals who must sell a prime residence in less than two years. Under the 2004
safe harbor rules, individuals may be able to get some capital gains relief under certain circumstances, such as being forced to move because a job has been relocated at least 50 miles or a home that must be sold because of multiple births resulting from the same pregnancy.

Points may be deducible by both buyers and sellers.

Interestingly, in this situation the buyer can also deduct the points when the home is sold.

“The buyer,” says the IRS, “reduces the basis of the home by the amount of the seller-paid points and treats the points as if he or she had paid them.”

Home offices may be deductible.

In some cases there may be tax advantages associated with not deducting your home office in the year or two before you move. Speak with a tax professional for specifics.

Mortgage insurance premiums may be deductible.

Mortgage insurance premiums should be deductible. The catch? Not all premiums are deductible by all borrowers. In general, the rules look like this:

The deduction applies to loans made after January 1st, 2007.
The deduction applies to both private mortgage insurance (MI) as well as mortgage insurance through the Federal Housing Administration (FHA), the Veterans Department (VA) and the Rural Housing Administration.
The deduction applies to acquisition indebtedness, meaning debt used to acquire a home.
If you refinance remaining “acquisition indebtedness” then you can write off mortgage insurance on the new debt.
You can take the deduction if you’re married, file jointly and have a gross adjusted income of $100,000 or less. If you’re single or married and filing separately the income limit is $50,000.
The deduction phases out once income limits are passed. For married couples, the deduction is reduced by 10 percent for each $1,000 in income over $100,000. This means there is no deduction for incomes above $110,000. For singles and those married and filing separately, the deduction is reduced by 10 percent for each $500 in additional income — this means there is no deduction above $55,000.
The mortgage premium write-off begins January 1, 2007 and is scheduled to end December 31st, 2010. However, the program is likely to be extended.
Speak with a tax professional for specifics.

Natural Disasters

Mortgage Forgiveness Act

Some questions to ask: When does this law end? Are home equity loans covered? What about state rules?

$8,000 Tax Credit For First Time Buyers

Under the FHA reform package passed by the Congress during the summer of 2008, first-time home buyers may be entitled to a tax credit equal to 10 percent of the purchase price of the residence. This credit is limited to $7,500 for married couples and single taxpayers but can be no more than $3,750 for married individuals filing separately.

The catch.

Okay, it’s really a $7,500 loan — without interest and when you really need it.

For specifics, speak with a tax professional before you go house hunting.

Investment real estate can generate substantial write-offs.

If a rental involves relatives special rules and restrictions may apply. Check with a tax pro for details.

A 1031 exchange may allow investors to defer all capital gains taxes.

Death of a Spouse

The capital gains write-off for the sale of a home is $500,000 if married and $250,000 if single. But what happens if a spouse dies?

Under new legislation passed by Congress, after December 31, 2007 surviving spouses will now have two years from the date of passing to sell the property and still qualify for the $500,000 write-off.

Gifts

For 2009 you can give someone as much as $13,000 per year, tax free. This is up from $12,000 in 2008. For gift information from the IRS, press here.

Sources and Publications

Also, the IRS itself has excellent information at its website, www.irs.gov, by phone at 1-800-829-1040 and with specialized publications such as those below:

2009 Real Estate, Mortgages & Taxes is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

Technorati Tags: 2008, 2009, Buyers, capital gains, credit, interest, investors, limits, points, sale, sell, Sellers, shelter, tax, taxes

Are You Keeping Up With Work & Wages?

Peter G. Miller — Fri, 02 Jan 2009 14:46:10 +0000

If you’ve been getting more money each year and maybe a bonus here and there you might think you’re doing pretty well. After all, part of the American dream is to get better at what you do and therefore earn more money as a result.

Unfortunately, you’re likely to notice that even with a bigger number on your paycheck money somehow does not go as far. What you’ve seen is right — and how right you are may be surprising

Falling Wages

The Federal Reserve says between 2004 and 2007 — boom times for the American economy — that “the share of family income attributable to wages and salaries fell 5.2 percentage points.”

Huh? Wages fell? If the country was doing so well how is it possible that families were earning less?

The answer is that while the country was doing well during the past few years — at least on paper — not everyone did equally well. Indeed, many fell behind.

For instance, the IRS reports that the nation’s 400 richest taxpayers are actually getting richer. The average filer in this group earned $263,306,000 in 2006 — that’s up from a mere $74,709,000 in 1996. The percentage of all income earned by our top 400 represented 1.31 percent of the total gross income in 2006. In 1996 the top 400 filers earned .66 percent of all income.

In other words, the income of the very rich doubled relative to everyone else’s in a ten-year period.

Wage Trends

Okay, what about workers? If you look at real hourly wages — how much people earn corrected for inflation — you can see that income remains about where it was in the early 1970s, more than 30 years ago. The chart below by Stan Sorscher, which was posted originally by WashingtonPolicyWatch.org, shows how wages have fared over the years.

Economists usually say that wealth is derived from four basic sources: land, labor, capital and entrepreneurial ability. As a society during the past few decades we have come to value land (think of rising home prices), capital (think of stocks and bonds) and entrepreneurial ability (folks who start new companies). Left in the dust have been people who actually work.

Smith makes $100,000 in profit from the sale of a prime residence owned at least two years. The federal tax? Zero. Notice that there is no Social Security tax on real estate profits.
Jones starts the Whatever Corporation. The company develops a new way to change TV channels and gets a patent for the idea. Jones sells stock in the company 14 months after he started the firm for $100,000. His tax? Because the money is a long-term capital gain from the sale of an asset he pays 15 percent, or $15,000. Again, notice that there is no Social Security tax on capital gains profits.
Green has worked at the North company for 15 years. By working overtime he has an adjusted gross income of $99,950. The tax? $21,971 — PLUS Social Security taxes.

What you’re seeing here demonstrates the value of lobbyists and PAC contributions. People don’t pay smaller taxes because they’re virtuous or saintly, they pay less because they have more power in Washington.

Inflation

There is little doubt that you earn more than your parents. Indeed, even if you have the same job and the same skills as your parents there’s no doubt that you are earning more — at least in cash terms.

However, the real measure of wealth is not how many dollars you have, it’s what those dollars buy. A few years ago I was in Romania and had a dinner which cost roughly 500,000 old Leu. While 500,000 is a huge number, the cost of the dinner in terms of dollar values was about $13.

We need more dollars today in part because inflation over time has made money less valuable. For instance, imagine that someone made $20,000 in 1980. Today you would have to make $54,910 to have equal buying power at the start of 2012.

What To Do

Your real financial goal is not so much to have more money, though that would be nice, as it is to have more buying power. There are several steps you can take to advance your personal finances.

Save. You cannot buy a home or stock or anything else without savings. Moreover, you need savings if you lose a job or have a sudden expense.
Get as much education and training as possible — these are resources which can never be taken from you.
Even if it means a lower salary, look for jobs with benefits. You’ll be grateful after just one medical bill.
Buy a home with a fixed-rate mortgage. See if you qualify for FHA financing or, if you have military service, for a VA loan.
Get married. Seriously. A good marriage is one of the keys to financial success.

Are You Keeping Up With Work & Wages? is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

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What are the major tax benefits of homeownership?

Peter G. Miller — Wed, 27 Aug 2008 00:09:21 +0000

In terms of federal taxes, you will generally be able to:

___Write off interest costs on acquisition financing with a principal balance of up to $1 million.

__Write off interest costs on a second mortgage or home equity loan with a principal balance of up to $100,000.

___Write off property taxes on your personal residence.

___Write off up to $500,000 (if married, $250,000) in profits when you sell a prime residence that you have occupied for two of the past five years.

___If you have not previously owned property, it is likely that you will switch from a standard deduction to an itemized deduction when you become a homeowner. It is probable that this switch will allow you to take some write-offs that are not now available with the standard deduction.

While the items above are general benefits, the actual rules can be complex. Press here for an overview of taxes, mortgages and real estate. For details, please see a tax professional.

What are the major tax benefits of homeownership? is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

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