Wisdom from The Action Wisdom In Action

From MSN Money.

"Your tax planning for your 2010 return should have started last December. It's more complicated this year because tax laws have changed again. They always do.

Still, there are moves you can and should make before Dec. 31 to trim your 2010 tax bill.

Let's start with the simple things:

FSA spending

mortgage interest

real estate taxes

homebuyer credits

pension or IRA contributions

medical or miscellaneous deductions

capital gains/losses"

Now, the not-so-simple things:

AMT

buy stuff (such as energy-efficient appliances)

Please refer to the original article link above for details on each. For year-round advice, check out Jeff Schnepper's "Pay Zero Taxes" books, and find out why I call him my tax god.

From CNN Money. The Debt and Deficit Commission appointed by Obama earlier this year have some preliminary findings--and they ain't pretty!

"Bowles and Simpson offer two options that slash tax breaks. And by doing so, they can lower income tax rates.

In their "zero plan" option, breaks are eliminated altogether. Under that scenario, individual income tax rates -- which they reduce from six brackets to three -- can fall substantially.

For instance, the lowest two rates (10% and 15%) could fall to 8%. The middle two rates (25% and 28%) could drop to 14%. And the top two rates (33% and 35%) could drop to 23%.

The corporate rate, meanwhile, could drop to 26% from 35%, to make it more attractive for companies to invest in the United States.

On the other hand, of course, lawmakers could choose to retain tax breaks. But the fewer they prune, the less rates can be lowered.

The second option from Simpson and Bowles, building on a bipartisan proposal in Congress, would reduce the mortgage interest deduction. The tax break would apply only to the first $500,000 of a loan on one's primary residence, about half of what counts today.

The second option would also repeal the state and local tax deduction and various other itemized deductions.

Individual tax rates under that plan would be 15%, 25% and 35%.

Another big proposed change under both reform plans would affect investment income. Capital gains and dividends, which are currently taxed at 15%, would be taxed as ordinary income -- that is, at higher rates."

...

"Who exactly will be paying in all that extra revenue? A specific break-out by income groups is still in the works.

It is likely that more people would end up with higher -- rather than lower -- tax bills, a commission staffer said. But he also noted that the revised tax code would probably be more progressive."

...

"Translation: Taxes are going up one way or the other. The question is will those higher taxes be levied in a system that is widely considered to be outdated, overly complex and highly inefficient, or in a system that is simpler and smarter?"

It seems to me that no matter which plan is chosen, we're all going to pay more in taxes and have less to take home--option 1 wants to do away with ALL tax breaks, including (I assume) child credits, earned income credit, employer health plan credits, retirement savings credits, mortgage interest deduction (for those who can claim it), no more business write-offs, no more investment loss deductions...the list goes on. Every penny we earn would be taxable.

Option 2 (as I see it) would merely cut back on current deductions and raise limits for others.

I believe we'll end up seeing both options--politically-speaking, they'll probably end up doing option 2 before option 1. State and local taxes will be left untouched, meaning we're still on the hook for those.

...and they wonder why we're not spending!

If anything, this is STILL a good time to be unemployed--if you don't make taxable wages, tips, or salaries, they can't tax you every pay period. If you don't make commissions, bonuses, earn interest or dividends, or make capital gains, they can't tax you at the end of the year. If you don't work, you can't eat, so guess what European program is going to take the place of meaningful employment? That's right--we're going to become a welfare nation just like Britain.

Don't be surprised if someday in the future, our government pays people to be sterilized, or leave this country. We're overpopulated for the economy.

Whatever option s chosen, then we'll get to see who's REALLY middle class and who's rich. Chances are good that if you make less than $250k, you're really in the low income bracket. So much of our lives are subsidized and we don't even realize it.

From MSN Money. It seems I have the jump on you this time, Jeff.

"Unless Congress acts soon, the Bush tax cuts created by the Economic Growth and Tax Reconciliation Act of 2001 will expire at the end of 2010. Here's what's at stake, what I expect to happen and how I suggest you plan for the changes.

A properly drafted will would have sheltered $7 million for a married couple from the Internal Revenue Service in 2009. We had an estate tax with a $3.5 million exclusion.

This year, there is no estate tax -- we have an unlimited exclusion. George Steinbrenner, the principal owner of the New York Yankees, picked the right time to die. His family saved a federal estate tax of more than $500 million.

But unless Congress acts, the estate tax will return Jan. 1 with an exclusion of only $1 million. Between a house, a retirement plan and any self-owned life insurance, the newly resurrected "death tax" will slam the upper middle class and suck bundles of dollars from their heirs.

Nobody wants an estate tax with only a $1 million exclusion. The Democrats are fighting for a $3.5 million exclusion with a top 45% rate; the Republicans demand a $5 million exclusion with a top 35% rate. They've been arguing this issue for more than two years now with no resolution.

Sen. Olympia Snowe, R-Maine, hit the nail on the head when she said: "It's all political theater. It's not about legislating anymore. It's all for the election coming very shortly."

...

"Hefty increases in income taxes and marginal rates would turn normal tax planning on its head. Unless Congress acts, this is what will happen to tax brackets and capital gains:

* The 10% bracket for low earners will disappear, and those dollars will be taxed at 15%. * That's a 50% increase in tax on those dollars for everyone, including those least able to afford it.

* The top marginal bracket will go from 35% to 39.6%. That's an increase of more than 13%.

* The maximum marginal rate on long-term capital gains will go from 15% to 20%. That's an increase of 33%. The zero tax rate for those in the 15% bracket or lower will disappear.

* The maximum rate on qualified dividends will jump from 15% to 39.6%. That's an increase of 164%.

Do you expect these increases to go into effect? Rather than accelerate deductions and defer income, you'd defer deductions until next year, when they will be worth more, and accelerate income into this year, so that it will be taxed at a lower rate.

Recognize capital gains now at a lower rate, even if you turn around and repurchase the same securities immediately. The wash-sale rules apply only to losses, not gains. From a tax perspective only, dump your dividend stock in exchange for appreciating securities. Trading dividend-yielding investments taxed at as much as 39.6% for investments producing capital gains with a top tax rate of 20% would be more than prudent, again purely on a tax basis."

...

"As your income increases above certain floor levels, both your deduction for personal exemptions and the total of your itemized deductions are reduced. The expiring Bush tax cuts phased out these exemption/deduction slicers. They're scheduled to return Jan. 1.

This is nothing more than a 3% to 5% increase in your marginal tax. Again, if rates are going up and deductions going down, the new planning paradigm would be to accelerate income into 2010 rather than 2011."

...

"The child tax credit is now $1,000 for each dependent child under age 17.

That's a $1,000 reduction in your tax. Without congressional action, it may fall 50% to $500 for 2011."

...

"Contributions to Coverdell Education Accounts (what used to be called Educational IRAs) are capped at $2,000 a year. If spent for appropriate educational purposes, the earnings on these accounts are tax-free. If the Bush cuts expire, the limit falls back to $500 per year."

...

"We have a whole lot of tax provisions that are scheduled to expire but that are typically renewed each December. They include:

* The $250 deduction for teachers' supplies.

* The itemized deduction for sales taxes.

* The tuition deduction.

* The fix to the alternative minimum tax.

* Extension of research and development credits.

By waiting until the end of the year, Congress shamefully makes planning a "will they or won't they" game. It also causes costly IRS confusion and frustration. That's because it's hard to design and print tax forms for January distribution if the laws keep changing at the end of December."

...

"How can an employer make a decision to hire additional employees when the employer doesn't know what the cost will be (health reform, anybody?) or even what the tax implications will be?

If "con" is the opposite of "pro," is Congress the opposite of progress? Think about that when you go into the voting booth next week."

From CNN Money. Original article contains commodities price comparison chart.

"Since Bernanke's comments in August, the dollar index has dropped 7%, while commodities -- which are priced in dollars -- have surged. Crude oil has jumped 14%, while gold has spiked 8%. Prices for cotton, corn, sugar, wheat and coffee also have all hit new highs during the past two months.

Ultimately, those lofty prices will trickle down to consumers in the form of higher prices for coffee, bread, pizza, gas, clothing and more.

"The problem I have with QE2, is it behaves like a tax on the consumer," said David Giroux, a fund manager at T. Rowe Price. "People want to believe it's a free lunch for the economy, but it's definitely not. Next year, we're going to be paying more at the gas pump and the grocery store."

Gas is rumored to go as high as $100/barrel from the current $82-83. Get ready for a return to $3/gallon gas. Whatever you did to deal with $4/gallon gas, do it again, and plan on continuing it until we get a new president.

...

"Lower long-term interest rates should encourage consumers and businesses to spend more. That, in turn, should lead to more jobs, better housing prices and an overall economic revival.

However, a second round of asset-purchases may not make much of a splash."

...

"Banks will have a lot more money to lend, and lower rates will make it easier for people to borrow," said Mike Schenk, vice president of economics and statistics for the Credit Union National Association. "But the problem is that that people are still up to their eyeballs in debt and are in the process of paying it down, so it's unclear how much more they'll be willing to borrow."

From Inc.

"One example of this shift is the phenomenon of cooperative consumerism, in which social business models help American households avoid parting with their hard earned dollars.

Instead of buying, for example, consumers are engaging in new and increasingly sophisticated renting and borrowing systems that represent a kind of innovative community commerce. In many cases, these arrangements are designed to scale an individual’s purchasing power."

...

"And why buy, when you can borrow? BookRenter in San Mateo, California, is based on the insight that everybody has a seventy-five dollar calculus 200 textbook in their basement. Then there’s NeighborGoods, a website based in Los Angeles that answers the question "Do I really need to own a table saw?" A user can simply enter his or her zip code on the website in order to swap or rent bikes, tools, and lawnmowers.

A few new start-ups I’m following even help you make money off your purchases. WhipCar in London and Relay Rides in Boston help you rent out your car. Another interesting project is Empty Miles, which saves money for companies through collaborative logistics. In the U.S., 25 percent of all trucks on the nation’s highways are 'dead-heading'—that is, traveling empty. By using geolocation technology, companies can match vehicles and shipments, thus saving money and the environment."

...

"...the values of community consumerism go beyond saving money. In the new barter economy, it’s really about the consumer wanting both value and values. In our research, seventy one percent of American consumers say they now make it a point to buy brands from companies whose values are similar to my own. In Tampa we followed around a 'carrot mob,' which organized to support Kim Phan’s small local teashop. A boycott is a stick, but a carrot is an incentive. Kim’s commitment to a sustainable business model and support of her community was rewarded with carrots as people spread the word through their meet up group to support Kim’s business."

...

"In the emerging barter nation, households are shifting from consumption to production. They’re sharing skills and resources and demanding more from your business. We’ve just scratched the surface of this movement. Whose to say they can't scale to the power of, say, Walmart?"

From CNN Money. Add this to the pile of discontent happening in 2011 and beyond.

"Tax experts almost uniformly say the next Congress should rethink the more than 200 tax breaks in the federal code that cost more than $1 trillion a year. And, yes, that includes even the really, really popular ones."

...

"For years, leading tax experts and economists from the left and the right have contended that tax breaks are, in reality, a form of spending. The cost of tax breaks is mostly invisible, since there's no formal accounting of them on Uncle Sam's books. And once passed into law, they are rarely scrutinized.

"Tax breaks are styled as tax savings, but really function as replacements for explicit government spending. Some make sense, but a great many are poorly targeted and would never pass Congress if presented as an outright spending proposal," tax expert Edward Kleinbard wrote in an article this summer called, "Sacred Cows: It's Them or Us."

...

"A disproportionate amount of the lost revenue from tax breaks comes from just five of them.

Not surprisingly, those five are also among the most popular:

* mortgage interest deduction;
* tax-free income workers get from employers to pay for health insurance;
* deduction for state and local taxes;
* deduction for charitable contributions;
* and myriad tax breaks for retirement savings.

Many of those breaks are only available to the roughly one-third of taxpayers who itemize deductions on their returns."

Whoa, Nellie! I DON'T itemize, but I take advantage of every single one of these tax breaks...AND I'M NO MILLIONAIRE! I don't even make 6 figures--I didn't have to (until now). If you live in America, or are subject to American tax law, this is what you may be facing next year and beyond. The Winter of Discontent is just a warm-up compared to what's coming!

Can you imagine how much MORE of your income would be subject to taxation with these breaks gone? This is how Obama plans to raise taxes: by eliminating tax breaks. Trouble is he won't just be punishing the rich like he intends--this will trickle down to EVERYONE.

"Since everyone in Congress can identify and vilify what they see as "tax breaks for special interests," curbing tax breaks has a lot of bipartisan support. The problem, of course, is that there's less agreement on just which tax breaks deserve the ax or at least a haircut.

And, of course, since politicians much prefer to hand out tax breaks to voters and financial backers, it may be hard for them to muster the mettle required to reverse gears."

We shall see if this actually comes to fruition. With potential gridlock forecasted for the next two years, maybe it can be stalled. In the meantime, look around for options to the tax breaks--how can you get their equivalents or do without them? If I come up with anything clever, you'll see it here.

Right off the bat, the mortgage interest deduction can be dealt with by paying down your mortgage to the point of non-deductibility--this means pre-paying your interest using this method.

Not only will the weather be weird AGAIN, and the crop availability in the spring be hit-and-miss AGAIN, but we have dreaded POLITICS and MONEY from outside forces (in other words CHAOS) to battle with--this should prove to be a very busy winter.

Well outside the realm of home and hearth, there is a war shaping up, and this war involves global currencies. I know the only currency you want to think about right now is what's in your pocket after taxes, but this is where the root cause of government-produced inflation comes from: how much your own currency's worth compared to other global currencies, and who's doing the manipulating.

As we all know, Obama's (and other presidents before him) plan is to devalue the currency in order to devalue the debt. He's not the only one using this plan--several other countries are also planning to use the devalue-and-conquer debt repayment plan as well. In other words, they aren't actually GOING to repay the debt--they're just going to call the dollar value shrinkage "payment in kind". Other countries with large national debts are doing the same thing, making 2011 a giant race to the bottom as far as currency devaluation (money-printing) is concerned.

How this affects you: As your currency loses value, it takes more of that currency to get the same purchasing power you used to have. This is called inflation, and it's going to be generated by governments as well as producers.

Just as a small leak in the budget adds up to a torrent of lost money, the same is true when it comes to inflation, only it works in the opposite direction--a small increase will add up to a torrent of loss to the government and producers in the form of higher costs. None of this HAS to happen, but our administration has chosen to pay down the debt this way because there is no more money from ANYWHERE! Obama can't entice us to spend more, so he's going to FORCE us to spend more through inflation.

America isn't the only country that going to suffer this winter and in 2011--the only "safe havens" from inflation (really, they'll just see less of it) are emerging markets in countries not economically big enough to be members of the G-12, but are members of the IMF.

Speaking of the IMF, a meeting of the G-12 was just recently held concerning the devaluation of the currencies and a "global rebalancing." Dynamic Duo member Tim Geithner (the Boy Wonder) was sure to bring along his global rebalancing idea, which was promptly shot down (I think this was planned), and now G-8 governments are free to conduct a currency war (a race to the bottom).

2011 will usher in inflation from all sides, folks, with no investing way out except through gold (which is already over-priced IMO)--I believe this was engineered. Stocks will tank, bonds will be worthless, and real estate isn't going anywhere soon (at least in THIS country), so what's left to invest in? Certainly NOT currencies! Traders have already told us the answer: commodities and energy. Dividend plays are also going to look good in a presumably-declining stock environment, and the Dogs of the Dow might very well turn out to be the small investor's savior for the next two years.

This is why I've been screaming about debt and pantry for the last year. You have less than a week before we see the first signs of November's offerings. The faster the race to the bottom goes, the less purchasing power you have with your money. They think we stopped spending BEFORE--wait till they see what we're going to do in 2011!

Here in America, this will only last until January of 2013, when we usher in a new president. Other places in the world might not be so lucky as to name an ending date.

UPDATE: Don't vote Obama in for another term--he's not finished with his "social justice" agenda yet.

• Don’t smoke—the new increase in cigarette tax is going to make it onerous, and the cigarette tax avoidance is going to throw SCHIP into jeopardy. It never should’ve been funded through an easily-avoidable vice tax.

• Don’t make an adjusted gross income over $125,000 for singles, or $250,000 for couples--you'll be considered "rich" and be hounded for more taxes.

• To avoid AMT, don’t make over $75,000 adjusted gross income.

• Donate taxable “things” to charity rather than money when the costs to own it (purchase, maintenance, taxes, insurance, etc.) exceed 28% of the value (such as vehicles, stocks, jewelry, homes, etc.).

• Don’t own anything that stands a good chance of experiencing rising taxes on it—homes, cars and computers (through real or personal property tax), etc.

• Avoid the proposed health insurance tax by switching to an HSA, FSA, or just paying cash. Look for “flat-fee” doctors, and pay them annual lump-sum payments.

UPDATE: Since HR 3200 has passed, there's a calculator to help you determine if buying insurance or paying the penalty instead would be cheaper.

UPDATE: HSAs are still legal, even with the new health care law, and they provide one very important benefit: tax sheltering. There's no limit to how much you can contribute, and the balance rolls over every year, so you don't lose money--you just have to spend it on "qualified health care expenses", and this may come in handy as a Medicare workaround.

• UPDATE: Eat a healthy, fruit-and-veggie rich diet so as not to have to choose between food and medicine—make food your medicine, and grow it at home to avoid running up against sales taxes. You may end up running afoul of the new Food Safety Act, which covers "any facility that produces, processes, and/or packages and distributes food"--this may end up including your kitchen and garden.

• Create more Obama-increased tax deductions—so far, it’s anything having to do with kids (through the Earned Income Credit and other deductions/credits).

• If the proposed “universal savings” plan becomes law, move IRA/401k money to Roth accounts, then move to tax-advantaged funds or indexes, or triple tax-free zero coupon bonds or municipal bonds—this avoids the possible confiscation and taxation of our retirement money. So far, there has been no talk of attacking the Roth accounts, and if the tax-free status of regular IRAs is restored, all you have to do is recharacterize what money you have in the Roth—it doesn’t cost anything, whereas converting the traditional IRA to a Roth WILL incur taxes, but it will undoubtedly be cheaper than the fines or taxation on the total amount. We still have a year for this planned savings nationalization, so you can still move money before a large tax increase takes effect.

• Avoid rising sales taxes and costs of food by growing your own as much as possible.

• Avoid rising gas prices, gas taxes, personal property taxes, insurance, maintenance costs, and registration fees by not owning a car.

• Avoid rising energy/utility costs and taxes by minimizing use of water, electricity, and gas unless you have independent sources (off-grid). Strive to get independent sources or re-use grid sources (like gray water) for more than one thing—like watering the garden.

• Avoid sales taxes by buying second-hand through non-retail places (garage sales, yard sales, and rummage sales). Swap/barter if possible.

UPDATE: Also use this to avoid the coming VAT tax. VAT only applies to NEW items, not used ones, so buy second-hand to avoid this too.

• Avoid taking more pay in a taxable form (wages, tips, and salaries)—instead, ask to get it in the form of perks, which are tax free (for now).

• Move money into whole life insurance policies for tax protection, and then cash out later for tax-free proceeds—this is how wealthy people move money to their heirs without running afoul of the estate tax.

• Change your type of income from active (wages, tips, salaries) to passive (dividends, rents, royalties, capital gains) to lower your tax burden if needed.

UPDATE: As of this writing (4/11/10), Obama's looking at taxing UNEARNED and PASSIVE income as regular income, but it isn't law yet--stay tuned for this change. If I hear anything, I will be the first to post it.

UPDATE: For 2011, there is a new investor tax law that aims to squelch basis-loss from sales of FIFO, LIFO, or HIFO investments. Always sell the LIFO investments to keep taxes to a minimum, and donate or will the others, but DO NOT SELL! IF THEY ARE STILL IN YOUR NAME BY THE TIME THEY are SOLD, THEN you INCUR THE TAXES. It's best to donate to charity or leave in your will those investments which have the highest gain from basis cost to current cost. Be assured this law will be repealed in 2012 when we get a new president.

• Look into the requirements for local public assistance programs—I know this may seem contradictory, but most of them only have eligibility based on active income and not assets. Lower your (taxable) active income if necessary to match the requirements. YOU paid into the system, so get some of it back! Look at it as Obama paying you for a change.

• Find ways around incurring a tax through alternate means (such as bikes for transportation, or cargo containers/storage units for homes), or combine items to consolidate taxes (such as RVs or vans for homes—both transportation and home. Mobile homes used to fit this bill because they were considered a vehicle if the wheels and license plates were still on them, but have now become “homes” and subject to property tax where they haven’t been banned outright).

Use your imagination and whatever limits and loopholes the law and tax systems allow—judging by the latest CBO deficit estimates, you’ll be living like this a long time, so you may as well get comfortable. Don’t be surprised if groups of people pool their money together and buy farms or multi-family dwellings outright, effectively setting up small communes—only the farmers did well in the last Depression. The group can always agree to sell when the recovery permits, or some members can offer to buy out others who wish to leave.

This list will update as more information becomes available.

From the Wall St. Journal.

"If you have a brokerage account, you soon will get a mailing or call about a new tax law that takes effect next year. Don't ignore this one.

The subject: what you must do now that your broker must report an investment's cost basis to the Internal Revenue Service after you sell a stock.

Cost basis is an area that is both crucial and confusing to taxpayers. It refers to the price of acquiring an investment, which then becomes the starting point for figuring tax when it is sold. Tracking basis can be complex, especially when there are multiple purchases, splits or dividend reinvestments. Shares in the same investment sold for the same price, for instance, generate different amounts of tax if they have different cost bases."

...

"Formerly the IRS had no way to know, short of an audit, whether taxpayers figured gains and losses correctly. This irked Congress, especially after studies estimated that basis errors—innocent or not—were contributing up to $25 billion a year to the "tax gap."

"It seemed that people who wanted to comply with the law were finding it too hard, while those who wanted to skirt the law were finding it too easy," says National Taxpayer Advocate Nina Olson. In 2008, Congress mandated that investment providers would have to track customers' cost bases and report them to the IRS on a 1099 form when an investment is sold, beginning in 2011.

Although the rules phase in, brokerage customers need to make decisions soon. The IRS recently published over 100 pages of rules pertaining to the new law. Here are answers to some important questions:

When does the new law take effect?

At different times for different types of assets. Brokers must begin tracking acquisitions and subsequent sales of stocks, real-estate investment trusts and foreign stocks as of Jan. 1, 2011.

Mutual-fund sponsors and dividend-reinvestment plans (DRIPs) have until Jan. 1, 2012, to comply. So if a customer holds both stocks and mutual funds within one brokerage account, the new law applies to the stocks in 2011 and the funds in 2012.

The effective date for exchange-traded funds varies. Stevie Conlon, tax counsel at Wolters Kluwer Financial Services, says many ETFs fall under the 2012 rule. But some—such as foreign ones classified as stock—are subject to the 2011 rule.

For individual bonds and options, the law kicks in on Jan. 1, 2013. Most partnerships and derivatives other than options aren't covered by the rules, but the IRS can extend the law to them after Jan. 1, 2013.

Will the IRS receive basis information for all my sales?

Not at first. Although many providers have been tracking cost basis for years, the new rules apply only to sales of investments purchased after Jan. 1, 2011, 2012 or 2013, as described above. So if you sell a stock in two years that you bought three years ago—or 30—your broker doesn't have to tell the IRS the cost basis when you sell it.

What changes in cost basis do my investment providers have to track for me?

In addition to purchases and sales, they have to track events such as splits, reinvested dividends and mergers, which can raise or lower cost basis. They also must track inherited or gifted investments.

Providers also must adjust for "wash sales." Taxpayers can't deduct a loss if similar shares are purchased 30 days before or after a sale. Ms. Conlon says wash sales are fairly common: "People change their minds, or sell shares at a loss near an automatic dividend-reinvestment date."

Providers must adjust basis if investments have matching Cusip numbers within one account. But they don't have to look across accounts at different firms or even different accounts at one firm—though the customer does.

So if Mr. and Mrs. Smith have two accounts—one joint and another in her name—at the same firm, the broker needn't combine information from the accounts, even if the couple files a joint tax return.

A footnote: Currently if a customer puts in an order to sell 1,000 shares of stock, he may get a voluminous statement showing multiple partial sales on different exchanges at prices pennies apart. Steven Rosenthal, a tax attorney with Ropes & Gray, points out that now brokers are clearly allowed to aggregate the bits of such intraday trades and show one average cost basis.

What does my broker need from me now?

You must decide whether to put in a standing order on which shares to sell first, or specify on a case-by-case basis. Examples of standing orders: FIFO (first-in, first-out), LIFO (last-in, first-out) or HIFO (highest-basis-in, first-out). You also may give the broker or another agent full or limited power to choose shares for you. You may change your mind anytime up till the settlement date, Ms. Conlon says.

If you identify shares on a case-by-case basis, you have to specify which were sold by the trade's settlement date. Many taxpayers have flouted existing rules by identifying which shares were sold much later, when they do their taxes.

If you don't tell your provider what to do, the law will choose for you—usually FIFO.

What if the amount of basis my broker reports to the IRS differs from what I report on my tax return?

If there is a discrepancy, it isn't clear how it will be resolved. There is currently no ready way to explain such a difference on Schedule D.

Do these rules affect my IRA, Roth IRA or 529 college-savings plan?

No, because investments in these tax-sheltered accounts don't have a cost basis."

Basically, Obama's desperately seeking money, and this is a way he can punish investors, traders, and the rich--the very people who represent excess to him. With this coming at us, here's one way to ward it off: an IRA or 401k account--they're tax protected. Obama only has access to TAXABLE accounts, not non-taxable ones!

If you have a taxable account, and are worried about selling, always sell the LIFO ones first to minimize your tax bite. Rather than selling the FIFO or HIFO ones, donate them to charity or gift the to a minor child, BUT DON'T SELL THEM--you'll take the biggest tax bite on these. Once they're out of your name, someone else takes the tax bite.

Count on this legislation to change once a new president is in office in 2012.

From Fox Business News.

"...we are only about 81 days away from what could be the largest tax hike in U.S. history.

Former adviser to President George W. Bush, who's now an economics professor at Harvard, outlined exactly why everyone... yes everyone... will be impacted if only the tax cuts for the rich are allowed to expire.

On an op-ed in the New York Times, Gregory Mankiw starts in the middle of the argument making a rational acknowledgment: “The Democrats are right about one thing: I can afford to pay more in taxes."

He's not playing the “woe is me card, ” the “I'm rich, but not really rich card.”

Mankiw says more taxes would just mean he'd work less."

...

"If he was offered $1,000 to write an article - without taxes at all - he would get a $1,000. And if he invested it at 8% interest he would end up with $10,000 in 30 years.

But then again, that world doesn't exist.

In reality, if the tax cuts expire, he would pay more than 39% in taxes, nearly 4% in Medicare tax thanks to Obamacare and more than 5% in state income taxes which equals $523.

As far as investing it, the corporation whose stock he chose would have to pay 35% tax, so he would only make a little more than 5%. So over 10 years that money would only grow to about $1,700.

But wait there's more!

Once he leaves his children that money
in his will, they'll get hit by a 55% estate tax. So instead of $10,000, his kids would get less than $1,000. So why bother in the first place!"

...

"a study by the an economist at Arizona State University found a 10% increase in taxes led to a 10 to 15% decrease in work hours.--especially if those workers felt their money was going to transfer programs like Social Security or welfare.

As Mankiw points out, some of these people being less incentivized to work may include surgeons or lawyers or people vital to your day to day life."

A full pantry and no debt also mean you don't have to work as much as before--you have less to support.

From Yahoo Opinion.

"As more Americans buy hybrid or electric cars, drivers in traditional gas-only vehicles are bound to start asking: Why should I still be paying more in fuel taxes? Don’t we all use the highways?"

...

"There is an alternative, one that is fair, already proven, and, based on a new study by some 80 experts, the best way to start financing surface transportation.

It is a pay-as-you-go fee system based simply on distance, or a tax on “vehicle miles traveled” (VMT). The idea is the centerpiece recommendation of the study, released Monday, called “Well Within Reach: America’s New Transportation Agenda.” The report is based on a recent three-day conference of experts at the University of Virginia."

...

"The study should help revive this necessary change for maintaining the nation’s 61,000 miles of highways. They’re in urgent need of repair and improvement – even as governments, especially the Federal Highway Trust Fund, collect less and less from gas taxes.

“Innovative thinking is needed to develop the next generation of user fees,” the report states. “Specifically, future funding mechanisms should not depend primarily on fossil-fuel consumption – which the government is actively seeking to discourage through a number of other policies.”

Taxing drivers by the mile won’t be easy. But the report does a service by offering proposals to overcome several obstacles and objections."

...

"The user fee can be calculated by various methods, including the way some states now check mileage during vehicle inspections or by tracking cars using toll-road transponders. Heavier vehicles such as freight trucks that severely damage roads would need a special system.

The report recommends pricing be varied as an incentive to discourage travel during peak traffic or to encourage more fuel-efficient vehicles. And fees need to be indexed to inflation – unlike the current federal gas tax (18.4 cents per gallon for cars), which hasn’t changed since 1993."

...

"Electric vehicles are due to hit the mass market by 2012, and Mr. Obama is pushing automakers to increase their miles-per-gallon averages by 2016. Such changes call for phasing out the gas tax and starting a new financing system that is still based on the concept of users paying for this government service."

If you drive 5,000 miles/year, your tax (at the proposed .02/mile) would come to $100--this may or may not be cheaper than the current tax we pay on gasoline. You might want to start keeping track of how much gas you buy in a year to determine your federal per-gallon tax total, which would be the number of gallons you bought in a year X .184 (the 18.4 current gas tax in decimal form).

The switch would serve to bring down gas prices for ALL of us by about .20/gallon, and cause lower driving-related taxes for those of us who don't drive very much.

Since I don't drive but once a week to a laundromat, I out on maybe 20 miles/month. Once a year, I travel with cat to the vet. Something tells me I'd be a big tax bust for Obama.

This tax plan is a disguised proposal for a big commuter tax. Start thinking about how you can cut down your annual miles before this thing goes into effect--ride the bus, carpool, bike, walk, or use a company car and let your boss pay the taxes. He can probably write them off anyway!

From CNN/Time.

"Inflation helps debtors and spenders at the expense of creditors and savers."

That's because the purchasing power of each dollar is diminished by the percentage of inflation. $1.00 minus the current inflation rate (say 2% for example) makes $1.00 worth .98, meaning the retailer now has to jack up the price of products by .02 to recapture each full dollar value spent. To get as full dollar's worth of something, you now have to spend $1.02 plus all the taxes that go along with it, raising the taxes as well as the original item price.

Let's take this into double-digits for a better example.

$10.00 (price of item) X 5% (rate of inflation) = .50 (increase in price of item)

$10.50 (new price of item) X 6% (sales tax) = .63 (total price of item)

$10.50 (new price) + .63 (sales tax) = $11.13

Your $10.00 item now costs $11.13--an 11% increase, even though the inflation rate was only 5%.

$11.13 (total price) - $10.00 (original price) = $1.13 more in total

$10.00 (original price) divided by $11.13 (total price) = .89 (two digits)

$1.00 - .89 = 11% (the inflation rate after taxes), making your dollar now worth only .89, so prices have to be raised at least 11% for the retailer to make full dollar values on each item sold, and that's just to break even. Retailers are seeking PROFIT, so you can bet the price increases will be much higher than that to ensure a profit.

Since the original price for the item was $10.00, the sales tax on a $10.00 item would have been .60 ($10.00 X 6%), for a total of $10.60 without inflation. The example total price above of $11.13 - the new total price of $10.60 means you save .53 without coupons, rebates, or store discounts because of an absence of inflation.

Bring inflation back into the picture, and that .53 in savings gets eroded away, and may even cost you out of pocket in the end. Inflation is like an extra tax on your money (courtesy of the Fed), and the higher the rate, the more you get charged in the end for the same item. This is why frugal people tend to spend when prices, taxes, and inflation are low in total--it costs less.

Back to the article.

"There's an argument to be made that inflation—or at least a reasonable increase in our current level of inflation—will help the economy. How? Inflation does two things: 1) It makes your money you have less valuable as times goes past—and so there's more reason to spend it now, which helps the economy. And 2) It makes the real value of debts shrink, or at least become less burdensome—making it easier (relatively speaking) for debtors to pay off what they owe, which also helps the economy (especially if these borrowers take on new debts)."

...

"...you can't really expect anyone—let alone the government—to help you save. There are far more forces out there that'll help you help out the economy by handing over your hard-earned dollars to somebody else.

Throughout the economic crisis, consumers have been sent a mixed message: that individually, it is wise and prudent to save, but that collectively, we need to spend to get the economy humming along again. Such an ambivalent message gives some merit to the theory that the government wants you in debt, mainly because when people are in debt it's good for the economy in two key ways: 1) The fact that you're in debt means you have been buying stuff; and 2) People who are in debt tend to work their butts off in order to get out of debt—or to keep buying stuff."

Inflation is the OTHER way to supposedly bring back the economy when savings and productivity are not possible. The current administration is doing its utmost to ensure savings and productivity aren't possible, and won't be for some time to come--Uncle Sam needs money!

Real total debts are reduced by the amount of inflation, making inflation more attractive to spenders. $100 in debt is reduced by the amount of inflation (say 5%), making the total true debt only $95 instead of $100, and the higher the inflation, the lower the true debt value becomes--paying down your debt without actually sending in money.

Now multiply this times the trillions Uncle Sam owes...not only does inflation diminish spending power, it also diminishes debt and interest on savings.

Originally written back in 2005.
___________________________________________________________

So you did your darndest to secure a lower rate, grab some of that equity, or cash out all together—now get ready for the consequences.

The good:
1. Some points are deductible, but not all, unless you used your proceeds to make home improvements (backed by receipts, of course).
2. If you’ve “serial refinanced”, then you likely have some unamortized points.
3. You put cash in your pocket one way or another.

The bad:
1. The reduced deduction may put you below the itemization cutoff.
2. Some points are not deductible in the year they were incurred.

The ugly:
1. Now you owe taxes on that extra money. Have you held enough aside to pay the extra “income”?
2. This “extra income” may be enough to bump you up into another tax bracket, possibly triggering the dreaded AMT.

The possible bright spot:
1. You may still come out ahead even after paying the taxes on this “income.”

You may want to give your TurboTax a preliminary workout to see if you’ll owe the IRS this year. If so, then you still have some time to make adequate adjustments elsewhere to offset this new income. Making increased payments to a taxable retirement account, an adjustment to your withholding, or merely making January’s mortgage payment in December may be enough to save you from owing Uncle Sam this year.

UPDATE: This is what they aren't telling you about the foreclosure rescue programs, and the same sort of thing goes for mortgage renegotiation, credit card debt renegotiation, and other debt settlement programs. The money you "saved" is still taxable as income, even though you didn't actually make any money from it. Welcome to the world of phantom income!

From the Wall St. Journal.

"What's prompting the shift to shorter loans? Historically low interest rates for fixed-rate mortgages.

Homeowners are doing the math and realizing that rates have fallen enough so the increase in payment between a new 15-year mortgage and their current loan is no longer unbearable for their budgets, says Bob Walters, chief economist at online lender Quicken Loans."

...

"The financial situation of those capable of refinancing today is a factor in the shift, Mr. Walters says. These people typically are homeowners with the best credit and the most equity -- and, therefore, most suited for a shorter-term loan."

...

"A 15-year mortgage also acts as somewhat of a forced savings account for homeowners, says Leif Thomsen, chief executive of Mortgage Master, a privately owned lender, given that the higher payments help a borrower pay down the principal at a quicker clip."

...

"Borrowers...who are worried about future loss of income, might be better served taking a longer-term mortgage but making extra payments on the principal to pay off the loan faster, says Mr. Walters.

For instance, if you refinance a $200,000 mortgage into a 30-year loan with a 4.5% rate, and then apply $100 of the savings to the principal payment each month, you'd save $31,700 in interest over the life of the loan, Ms. Cutts says. And you would pay off the mortgage in 25 years, instead of 30, she adds."

Take a good long look at your amortization schedule (available at your bank if you didn't receive one at closing)--you'll notice the principal part of the mortgage payment is cheap compared to the interest each month. Using the Charles Givens mortgage snowball method (p. 121), you could make your own 15-year mortgage with less pain and suffering. It's faster and cheaper than a biweekly mortgage or a 15-year mortgage, and you can elect to skip months if money is tight.

To speed up the payment process, you may also elect to pay more than one of the advance principal payments, since they are so cheap at the beginning of the mortgage--as long as the bank receives them by the end of the month.

By paying your CURRENT mortgage payment, PLUS the next two months' worth of principal EACH MONTH, you turn a 30-year mortgage into a 10-year one without all the hassle, fees, and closing costs of a refi NO MATTER WHAT YOUR INTEREST RATE IS. Lower rates from the start would be beneficial, I admit, but we can't all have a perfect world.

Now if we all could get an amortization schedule for our CREDIT CARDS...

I left off yesterday with a warning that Obama and his minions are coming for your retirement money, and how to avoid it:

"Plan avoidance tip: if it should come to fruition, plan on shutting down your 401k, shift the money into a self-directed IRA account, then you can access the money to buy cheap real estate (but not to live in). Rental income from those investments will go directly back into your IRA account, as will the proceeds when you finally sell. When you eventually DO retire, or become 59 1/2, you can take a house as an IRA distribution. Sell a house every two years, with the proceeds coming in under $250,000, and the home sale is tax-free.

If you were to do this now, you will profit immensely when the real estate market comes back--perhaps more than if you stayed in the stock market, and DEFINITELY if you chose the government bonds plan. Since this new account is self-directed, you don't have to just buy houses--you can put some back in the stock market, buy precious metals, ETFs, foreign currencies, foreign bonds, and/or foreign real estate. You can even finance a business with one, as long as you don't participate in it directly.

...

You can also put money back into your account after distribution under certain circumstances. If Congress made the law, Congress was sure to leave a back door to somehow avoid complying with it.

What to do about the existing employer 401k plan offering, and its tax shelter status? Nothing--according to the proposed legislation, the 401k and IRA plans will now be taxable, so you may as well shuttle off your after-tax contributions to your self-directed IRA by means of an automatic deduction, or by simply sending them a check for the monthly equivalent amount that was going to the 401k or IRA plan. Do anything but keep your money under the employer's wing, where the IRS can get its mitts on it."

There is another way to avoid being taxed on that money: DON'T MAKE IT IN THE FIRST PLACE! Take payment in things other than salary/wages, like additional benefits, a benefits upgrade, buying/upgrading health insurance, comp time, a shortened work week, additional vacation or sick leave time, or any other way you can be "paid" without actually receiving cash. Benefits aren't taxable to you, so if you can amass the same $$ amount in benefits as you formerly spent on your 401k/IRA account before it became taxable, it should all come out even (I hope).

Here's a previously-written article from the archives about working for perks and benefits--it might give you some ideas.

From Fox Business News (video). Scroll down on the home page until you see the video screen. Click on GOVERNMENT PLANS FOR YOUR 401K, mute the speakers through the first 20 seconds or so of the video for the commercials, then turn up the volume.

I wrote about this stuff before--back in November of 2008. Now we're hearing it again, so this makes the second warning call.

The evil plans:

"Basically, Congress is hearing proposals to end tax-deferred retirement savings accounts as we know them, and substituting a government-run Social Security-like account in their place. Apparently they don't think we can invest our own money well enough, and they need our money under their control to use as collateral for more borrowing."

...

"This is going to be one hell of a tax increase for ALL of us--at least $20.5k in added individual income when shelters are done away with ($15.5k for 401k's and $5k for IRA plans). Gosh--I wonder what Congress itself is going to do...oh, wait--they have pensions!

Another thought: you can legally make a withdrawal from retirement accounts to buy your first home--perhaps we can withdraw all of it, and start buying homes in cash with our retirement money. We can all live in huge mansions just to protect our money just like the rich."

Instead of a $20.5k tax increase, it would be more like a $21.5k increase: $16.5 for 401k's and $5k for IRAs (using 2010 figures).

The government wants to use your 401k money to buy bonds to lower the debt by automatically enrolling you in the new Universal Retirement program and investing all your money in government bonds--both old and new money. We knew we were going to have to pay down this debt, but THIS way? Where's the spending slowdown? They think they've found a vast new sea of money to spend, and that it's never going to run out.

John Kerrey is introducing legislation into Congress that promotes this activity--hopefully, it won't get anywhere until November, and he and/or others who back this stupid thing will be voted out.

Plan avoidance tip: if it should come to fruition, plan on shutting down your 401k, shift the money into a self-directed IRA account, then you can access the money to buy cheap real estate (but not to live in). Rental income from those investments will go directly back into your IRA account, as will the proceeds when you finally sell. When you eventually DO retire, or become 59 1/2, you can take a house as an IRA distribution. Sell a house every two years, with the proceeds coming in under $250,000, and the home sale is tax-free.

If you were to do this now, you will profit immensely when the real estate market comes back--perhaps more than if you stayed in the stock market, and DEFINITELY if you chose the government bonds plan. Since this new account is self-directed, you don't have to just buy houses--you can put some back in the stock market, buy precious metals, ETFs, foreign currencies, foreign bonds, and/or foreign real estate. You can even finance a business with one, as long as you don't participate in it directly.

Self-directed IRA FAQ

You can also put money back into your account after distribution under certain circumstances. If Congress made the law, Congress was sure to leave a back door to somehow avoid complying with it.

What to do about the existing employer 401k plan offering, and its tax shelter status? Nothing--according to the proposed legislation, the 401k and IRA plans will now be taxable, so you may as well shuttle off your after-tax contributions to your self-directed IRA by means of an automatic deduction, or by simply sending them a check for the monthly equivalent amount that was going to the 401k or IRA plan. Do anything but keep your money under the employer's wing, where the IRS can get its mitts on it.

There will be more on this subject as I gather information. I myself am deeply interested in this--my own retirement's at stake here.

From Martin Weiss Research. Basically, we're sliding back down the rabbit hole, and last year's horrors will replay themselves--the old BRIC portfolio plays are coming back.

The forecasts:
1. The Obama administration and Congress will be paralyzed, unable to pass another big stimulus package, and unable to prevent a double-dip recession.

This would actually be a GOOD thing, because it means government has to step back from massive deficit spending, and business now has to step up...this spells R-E-C-O-V-E-R-Y.

2. The entire burden of fighting recession and financing deficits will fall on central banks. Therefore, Bernanke and his counterparts in Europe will launch a second, even bigger round of money printing.

The GOOD part of this? Interest rates will be kept low for the foreseeable future. The BAD part? Devalued dollars--worse than we already have. However, this is good for trade, because foreign countries can no buy our crap at even bigger discounts than before...if we ever make things again.

3. The sovereign debt crisis will soon return with a vengeance — first in Eastern Europe, then in the U.S. and the U.K.

In other words, our bonds will be worthless as their interest rates climb higher and higher to offset the much-increased risk in owning them. No matter what the tempting offer, STAY AWAY FROM BONDS!!

4. The government debt burden in the United States will soon be worse than the debt burden in Greece! Ultimately, the debt burden in the U.S. will reach 400% of GDP, more than triple the debt burden of Greece today.

Couple this with super-devalued dollars and a government that's out of bullets to shoot into this economy, and yep, we're headed into a depression that will make the last one seem tame by comparison. Yep, we're definitely looking at higher taxes for ALL income brackets, so top off your pantries now for at least a two-year period. We may also be looking at layoffs at the top levels--federal government--so whatever debt and money arrangements you need to make, do it now while the banks are still open. Public services are likely to get cut, so you may have seen your last unemployment extension, as well as some unemployment workers. Undoubtedly, there will be cuts in food stamp/welfare/SSI, Medicaid/Medicare, and other social safety net programs, and the people who work in them.

Corporations and businesses have been hoarding cash, and they should step in at this time. They won't throw ALL their lot in at once, but will trickle in over the next decade while new incoming Congress-critters will be elected to clean up this mess and put us back on a decent fiscal course--first on that docket will be repealing Health Care Reform.

5. Starting right now and continuing for years, the growth in China will to be at least four times greater than that of the U.S. and Western Europe.

They have the cash to sustain it. Still, I wouldn't invest there--the politics are too unstable, and the growth won't last forever.

6. Over the next 12 months, investors in Indonesia will make even more money than investors in China.

In other words, there's something better than China, and with friendlier governments, too.

7. While Asia outperforms the U.S. and Europe, Brazil and Chile will outperform most of Asia!

I'd bet more on Chile than Brazil--we know from past articles that Brazil's population is just as crazy about over-spending as we are. Besides, Brazil has a dictator, while Chile has an elected president.

8. Some of the greatest fortunes in the world will be made in international ETFs!

Okay--this is where I get off the train. The original article recommends specific ETFs, but I want you to do your homework and find YOUR OWN investments. Beware that ETFs cannot be placed in an IRA account, but CAN be placed in a Roth account, and may not be as tax-friendly to you if bought outside Roth accounts.

From Yahoo Science. It seems the inevitable happened--someone figured out how to game the system.

"...the executive board of the U.N.'s Clean Development Mechanism said that five chemical plants in China would no longer qualify for funding as so-called carbon offset credits until the environmentalists' claims can be further investigated."

...

"...environmentalists say rich nations could be wasting billions of dollars on what some are calling "perverse financial incentives," because some of the largest projects funded by the U.N.-managed CDM are a golden goose for chemical makers without making meaningful cuts in emissions."

...

"The chemical makers are paid as much as $100,000 or more for every ton they destroy of a potent greenhouse gas, HFC-23. The price for destroying it is based on its being 11,700 times more powerful as a climate-warming gas than carbon dioxide.

But that gas is a byproduct of an ozone-friendly refrigerant, HCFC-22, which those chemical makers also are paid to produce under the U.N.'s ozone treaty. Environmentalists say there is so much money in getting rid of HFC-23 that the chemical makers are overproducing HCFC-22 to have more of the byproduct to destroy.

"The evidence is overwhelming that manufacturers are creating excess HFC-23 simply to destroy it and earn carbon credits," said Mark Roberts of the Environmental Investigation Agency, a research and advocacy group. "This is the biggest environmental scandal in history and makes an absolute mockery of international efforts to combat climate change."

It sounds like the U.S. farmers who are getting paid by our government NOT to grow anything, as well as farmers who get paid by the government to grow only specific crops. Wherever there's a regulation of some sort, there's a way around it--give it time.

From Martin Weiss Research. This is all that stands in the way between us and the light at the end of the tunnel mentioned in the previous article (the corporate comeback).

"This week, policymakers met in D.C. and decided to fire up the printing presses. Led by “Helicopter Ben” Bernanke, they pledged to buy new Treasury securities whenever old Treasuries or mortgage securities matured or were paid off.

That means instead of shrinking its $2.05 trillion portfolio, the Fed will maintain it by purchasing an estimated $10 billion to $20 billion per month in Treasuries. It’s focusing on securities with maturities between two years and ten years."

...

"Heck, the Fed itself all but admitted its efforts have been a dismal failure.

In the post-meeting statement on Tuesday, the Fed said:

“The pace of recovery has slowed in recent months. Housing starts remain at a depressed level.”

The statement went on to say that household spending “remains constrained by high unemployment, modest income growth, lower housing wealth and tight credit.”

In other words, the economy is rolling over! And in what must be one of the most UNDER-reported stories of the year, researchers at the San Francisco Fed just announced that there’s a “significant” chance the economy will tip back into recession."

...

"What nobody in D.C. will tell you … but I will … is that a big economic slowdown is already baked in. There is nothing the Fed can do … nothing Congress can do … nothing the Obama administration can do … to prevent it.

The massive, reckless credit bubble that built up over the past couple of decades needs to be unwound. If you prefer the jargon term, it’s “deleveraging” — and it’s something we’re just going to have to get used to."

Same story, different day...what prolonged the recovery out of the Great Depression was government interference--much like what's going on now. If the government would just stop and get out of the way, business (the usual savior in any downturn) will step in to fill the spending gap with new orders for supplies, stock, and/or people to handle the new incoming orders.

As of yesterday, we had a teacher/union employee bailout with money to the states, a proposed program to (again) send seniors a $250 check, and there's talk about a government plan to pay unemployed people's mortgages for the next two years in the 17 hardest-hit states for foreclosures, as well as a new cash-for-clunkers deal, extending unemployment bennies yet again, and we've already had an extension of the unemployment bennies, Atlanta getting bombarded by 30,000 zombies looking for public housing (and there was only 13,000 applications for some 400+ possible openings next year), higher unemployment rates, higher foreclosure rates...all this in top of the proposed VAT tax, transaction tax, HCR "tax", higher income taxes, higher dividend and capital gains taxes, and inflation looming on the horizon.

Do you see a pattern here? Any sort of path to success, Obama's put a roadblock on with taxes--real or proposed. Any sort of path to dependency, Obama's funded with borrowed money and open arms, and the Fed is complicit in his ultimate plans.

By throwing out all this money, he's accomplishing two things: buying votes (for himself or the Democrats as a whole--he's worried about the midterm and 2012 elections), and creating dependency to accumulate power.

Screw up? No--it's the plan. Now all they need to do is figure out how to separate us from our pantries, gardens, emergency funds, paid-off debt, and self-made jobs. My guess is that's where the jack-booted thugs come in--during the Depression, house-to-house inspections were done, and any food deemed "excess" was removed and redistributed. I see that as the only way to separate us from our pantries--they did it once, and may do it again if desperate enough. Luckily, his term is almost half over, and time may not be on his side.

From CNN/Fortune. As far as I can see, it's the only tax scheme that doesn't have a lobby against it, and would be the path of least resistance.

"Right now, the VAT appears so radical that it's gained little support in Congress and isn't even endorsed by the Obama administration. But (Congressman) Ryan told me that a VAT is far more likely than most Americans imagine. The reason isn't the one that many experts are forecasting -- that the Fiscal Commission appointed by President Obama will recommend the controversial levy. "I don't believe the Commission will advocate a VAT," Ryan told me, adding that he doesn't speak for his fellow members.

On the contrary, Ryan fears another path to the VAT. "It cannot pass without a fiscal crisis," he warns. "Our leaders are now courting one with big spending and by adding new entitlements. They know in the back of their minds that if a fiscal crisis comes, they can throw a VAT on top of that."

...

"The VAT's appeal is that it opens an enormous source of revenue while the income tax severely limits the amount of new money the government can collect. It's clear that the tax increases that the administration advocates won't come close to solving the debt problem. By its own estimates, the rate hike for high-earners planned for 2011 would reduce projected debt by just $620 billion, or a paltry 3% by 2020, and that's assuming the higher taxes do nothing to slow economic growth, a highly questionable assumption.

It's practically certain that a credit collapse is looming. The only question is when."

...

"The rub is that once a VAT becomes law, it's bound to grow far larger. And no country that has ever enacted a VAT has seen is repealed. "A VAT would permanently increase the size of government," says Foster. Indeed, it's been the engine that's raised government spending as a portion of national income, frequently to well over 50%, in every country that has one, from Germany to Japan.

Once the VAT gets its nose under the tent, the beast will follow."

This is what I'm afraid of--once the Congressional beast gets a taste of the wonderful food, they'll want more and more, and then we become Britain. Anybody with a job over in Europe either works for the government or has a business in the family that ONLY hires family.

Like the much-flaunted Fair Tax, there's nothing to stop the VAT from getting increased. Fair Tax would start out at 23%, but where would it end...100%? As for VAT, rumor has it starting out at 21%, but again, where would it end?

Fair Tax is aimed to replace all the other taxes we pay now. VAT is on top of what we pay now. Both can be easily gotten around with judicious use of thrift stores, yard sales, and the general use of used stuff in our lives--no more buying off-the-rack. Both tax plans would nuke our economy once the public learns how to avoid them. This is what Obama and his administration want to happen--nuke our economy to spread the wealth to current Third World countries.

Taken to the extreme outcome, I see us returning to England's feudal times, when we'd grow crops to pay our taxes--an actual job would be out of the question (given the hiring choices: government, Wall St., or family), yet we'd still be taxed on SOMETHING if not income...like assets. How would we pay these taxes without jobs? Just like the peasants did back in feudal times--with various crops.

Taken one step further, most of us would find a way to leave this country, returning it back to the wilderness (albeit developed now) we found some 200+ years ago. Obama's dream would be realized, and America would be completely collapsed.

It's not too late to stop this madness, and some of us are taking the initiative at the ballot box as we can.