Solving America's Debt Problem By Cutting Taxes, Social Security, Medicare and Federal Retirement: What do you think about these proposals?

Solving America's Debt Problem By Cutting Taxes, Social Security, Medicare and Federal Retirement: What do you think about these proposals?
To tackle America’s growing national debt problem, President Obama put together a task force earlier this year to look at options on how to cut government spending, implement tax reform and improve the effectiveness of federal entitlement programs. The deficit reduction commission co-chairs (Erskine Bowles and Alan Simpson) put forward a $3.8 trillion deficit-cutting draft plan that calls for discretionary spending to be cut by $1.4 trillion over 10 years, while mandatory spending; including Social Security, Medicare and Medicaid – would be reduced by $733 billion. Taxes would be raised by $751 billion. More specifically:

Tax Cuts and Changes
* Consolidate the tax code into three individual rates and one corporate rate. Based on the options the bottom tax rate will be between 8% and 15%, the middle rate would be between 14% and 25%, with the top rate capped at 35%. The Corporate tax rate would be cut to 26%
* Repeal AMT

* Triple standard deduction to $30,000 ($15,000 for individuals)
* Repeal state & local tax deduction, cafeteria plans, and miscellaneous itemized deductions
* Limit mortgage deduction to exclude 2nd residences, home equity loans, and mortgages over $500,000
* Treat capital gains and dividends as ordinary income
* 15-cent increase in the gas tax
* Gradually increase the taxable maximum to capture 90 percent of wages by 2050 (vs 82% at the end of this decade

Social Security, Medicare and Health Care Changes
* The Social Security retirement age would rise to 68 in about 2050 and 69 in 2075, as the retirement age is indexed to increases in longevity
* Pay doctors and other providers less, improve efficiency, and reward quality by speeding up payment reforms and increasing drug rebates
* Pay lawyers less and reduce the cost of defensive medicine by adopting comprehensive tort reform
* Replace existing cost-sharing rules with universal deductible, single coinsurance rate, and catastrophic cap for Medicare Part A and Part B.
* Add a robust public option and/or all-payer system in the health care exchange system
* Add a new special minimum benefit to keep full-career minimum wage workers above the poverty threshold
* Give retirees the choice of collecting half their benefits early and the other half at a later age to support phased retirement options

Federal and Military Changes
* Use highest 5 years to calculate civil service pensions and ask federal workers to contribute half the cost (not 1/14th)
* Reform COLA payments for civilian & military early retirees
* Reform military retirement system to vest after 10 years (not 20); defer collection until age 60
* Reducing Congressional and White House budgets by 15 percent, freezing federal salaries and cutting the federal workforce by 10 percent.
* Freeze Defense Department salaries and noncombat military pay at 2011 levels for three years, cutting overseas bases by one-third and doubling proposed cuts in defense contracting.
The savings would come between 2012 and 2020. The result would be a deficit cut totaling about $400 billion or about 2.2 percent of the nation’s gross domestic product in 2015. That would exceed Obama’s goal for the panel of a reduction to 3 percent, from the current 9 percent of GDP. While most economists say some combination of spending cuts and tax increases is necessary, Republicans are wary of tax hikes and Democrats are reluctant to reduce U.S. government benefits.

For now they are just draft ideas and it will take a long while before Congress actually considers them, even though the commission’s plan calls for having them in effect by 2012 to 2013.

Warren Buffett, in a recent interview with CNBC, offers one of the best quotes about the debt ceiling

Warren Buffett, in a recent interview with CNBC, offers one of the best quotes about the debt ceiling:

"I could end the deficit in 5 minutes," he told CNBC. "You just pass a law that says that anytime there is a deficit of more than 3% of GDP, all sitting members of Congress are ineligible for re-election. The 26th amendment (granting the right to vote for 18 year-olds) took only 3 months & 8 days to be ratified! Why?

Simple! The people demanded it. That was in 1971...before computers, e-mail, cell phones, etc. Of the 27 amendments to the Constitution, seven (7) took 1 year or less to become the law of the land...all because of public pressure.

Warren Buffet is asking each addressee to forward this email to a minimum of twenty people on their address list; in turn ask each of those to do likewise. In three days, most people in The United States of America will have the message. This is one idea that really should be passed around.

• Congressional Reform Act of 2011
1. No Tenure / No Pension. A Congressman collects a salary while in office and receives no pay when they are out of office.

2. Congress (past, present & future) participates in Social Security. All funds in the Congressional retirement fund move to the Social Security system immediately. All future funds flow into the Social Security system, and Congress participates with the American people. It may not be used for any other purpose.

3. Congress can purchase their own retirement plan, just as all Americans do.

4. Congress will no longer vote themselves a pay raise. Congressional pay will rise by the lower of CPI or 3%.

5. Congress loses their current health care system and participates in the same health care system as the American people.

6. Congress must equally abide by all laws they impose on the American people.

7. All contracts with past and present Congressmen are void effective 1/1/12. The American people did not make this contract with Congressmen. Congressmen made all these contracts for themselves. Serving in Congress is an honor, not a career. The Founding Fathers envisioned citizen legislators, so ours should serve their term(s), then go home and back to work.

National Spending? Here are some facts
Washington D.C. - some facts about revenue collections and spending.

Collections: Tax Revenues

plus: Misc. Federal Receipts


minus: Expenditures

equals: Surplus/(Deficit)

1 Income Security includes programs like unemployment, food and nutrition, and Federal employee retirement benefits.

2 The Federal government uses "netting" logic to reduce published outlays to $3.456 trillion (3.744 - .288). They are separated here to show true spending. "Net" outlays in 2011 are an estimated $3.819 trillion (+10.5% vs. 2010).
Some Observations
• Approximately 56% of spending is for "mandatory" programs like social security, medicare, and veteran benefits.
• 44% of spending is for discretionary programs.
• Our Federal government spent approximately 40-50% more than it brought in during 2010. This is projected to be over 60% in 2011.
• If the individual income taxes collected each year were doubled, the budget would still show red ink in 2011 and would barely cover the 2010 deficit.
• Three times more is spent on legal and government administration than on agricultural support.
• Estimated net Federal outlays increase by 10.5% in 2011.

The estimated spending increases in some key Federal functions are:
• General Government: up 39.3%
• Veteran's benefits and services: up 30.5%
• Administration of Justice: up 13.5%
• National Defense: up 10.8%
• Medicare: up 9.5%

So as the political rhetoric hits high gear and politicians debate increasing our $14 trillion in national debt you now have the facts no matter which side of the aisle makes more sense to you.

Winter Newsletter 2011-2012

Dear Client:
Happy New Year! We hope you had a happy, healthy and prosperous 2011 and we look forward to seeing you at your upcoming tax appointment. This issue of the newsletter contains a Tax Checklist to help you organize your tax documents and some frequently overlooked tax deductions that might help reduce your tax bill. Whenever we talk about taxes, the following caveats apply: “It depends,” and “these deductions may not apply to all taxpayers.” If you have any questions about these or any other tax-related matters, please let us know when you call to schedule your appointment. We look forward to seeing you soon!
• Charitable contributions: In addition to the usual cash donations that you have made throughout the year, you may be able to deduct the cost of using your vehicle if you volunteer your time or provide a service to a qualified charitable, educational or nonprofit organization.
• There are two options available for claiming vehicle expenses and, naturally, the IRS requires you to have “reliable written records” for either method:
• To use the standard charitable mileage rate of 14¢ per mile, your records must show the name of the organization, the dates you drove your car for your charitable work and the number of miles driven.
• To use the actual vehicle expenses, your records must show the costs of operating your vehicle that directly relate to your volunteer work.
• You can also deduct parking fees and tolls regardless of which method is used.
So, if you are a scout leader, a Red Cross volunteer, spend a few hours helping out at the local Food Bank or are actively involved with your religious organization, your vehicle expenses may increase your charitable contribution deduction.
In addition to volunteer miles driven, you may have spent money out of your own pocket within the scope of your volunteer work. These expenses might include office supplies, uniforms, and even travel expenses if you were away from home while performing your charitable service. These documentation requirements for out-of-pocket expenses apply:
• You must have “adequate records” to prove the amount of the expenses.
• You must obtain an acknowledgement from the organization before you file your tax return that contains a description of the services you provide, a statement that says you were not reimbursed for the expenses, and that you receive no tangible (other than religious) benefit from the organization.
• The final point under the category of charitable contributions, is simply a reminder regarding noncash contributions:
In recent years the IRS has stiffened the required documentation for donations of clothing and other household items to nonprofit organizations like the Salvation Army or the Goodwill Industries. “Three bags of clothing” or “two boxes of books” is not an adequate description of the donated items to claim the deduction. You must have a list of the donated items along with the fair market value you have placed on those items, and some form of receipt or acknowledgement from the organization.
Here are a few handy websites to help you evaluate your noncash items:

• Salvation Army evaluation guide
• Salvation Army evaluation guide
• Goodwill Industries 
• Usedprice.com contains Blue Book valuations for different categories of noncash donations from television sets and computers to guns, musical instruments, power tools and more:

• Medical Expenses: In addition to the usual deductions for out-of-pocket medical expenses like prescriptions, copays, dental work and glasses, you may also be able to deduct the amount that you pay for medical insurance premiums. The deduction is not just limited to medical, hospitalization and prescription plans, it can also include dental, optical (including contact lens replacement coverage), and certain qualified long-term care plans. Also, the amounts you pay for Medicare Part B and D, and in some cases, Part A, are also deductible insurance premiums. 
• As with the deduction for charitable miles, there is also a deduction for medical miles and the same two choices apply: the standard medical mileage rate or actual expenses. Be aware that the medical mileage rate for 2011 changed in mid-year! For medical miles driven from January 1 to June 30, the rate is 19¢ per mile; From July 1 – December 31, the rate is 23.5¢ per mile. You can also deduct parking fees and tolls regardless of which method is used for car expenses. 

Looking back to 2011, it’s been a relatively quiet year for tax changes, and we can all appreciate that! Congress passed the two-month extension of the Social Security tax reduction and will consider a longer extension when it reconvenes early in 2012.


Tax Checklist
This form is to assist you in gathering your income tax information. Use it as a guide for information you need to provide. Any questions, please call or e-mail.

GENERAL INFORMATION:
□ First, middle initial, and last names of taxpayers and dependents as written on the Social Security cards, and dates of birth for taxpayers and all dependents, especially new dependents.
□ Address, (city, state, zip), telephone number, and e-mail address.
□ Marital Status: 
Single ___ Married ___ Head of Household ___ Separated ___
□ Number of Dependents: ___ Did any dependents have any income? 
Yes ___ No ___
□ Do all dependents live with you? Yes ___ No ___

TYPES OF INCOME:
□ Wages - All W-2's
□ Pensions/Retirements - 1099-R
□ Business Income - All 1099-MISC
□ Social Security - SSA-1099
□ Farm Income
□ Bank Interest - 1099-INT
□ Alimony Received - Total amount
□ Dividends - 1099-DIV
□ Unemployment - 1099-G
□ Commissions - 1099-MISC
□ State Tax Refund - 1099-G
□ Tips and Gratuities
□ Miscellaneous - Jury Duty, Gambling, Other
□ Sales of Stock, Mutual Funds - 1099-B

BUSINESS INCOME & EXPENSE ITEMS: 
This list is not all encompassing. If you don’t see an expense listed below, ask.
□ Total (Gross) Income
□ Advertising
□ Auto: Parking &Tolls
□ Business Phone Expense
□ Cell Phone Expense
□ Subcontractors
□ Commissions Paid
□ Insurance
□ Interest Paid
□ General Office Expense
□ Rent/Lease Fees Paid
□ Legal or Professional Fees
□ Repairs
□ Cleaning/Maintenance
□ Dues & Publications
□ Equipment/Supplies
□ Tools
□ License Fees/Taxes Paid
□ Utilities
□ Education Expense
□ Association Dues
□ Bank/Credit Card Fees
□ Postage
□ Meals/Entertainment
□ Business Miles & Total Miles
□ Asset Purchases
□ Hotel/Travel Expense

ADDITIONAL ITEMS FOR RENTAL PROPERTIES:
□ Keys
□ Condo/HOA Fees
□ Management Fees
□ Mortgage Statements
□ Yard Work
□ Termite Treatment Expense
□ Utilities
□ Mileage/Travel
□ Other

DEDUCTIONS/CREDITS TO INCOME:
□ Self-employed Health Insurance
□ IRAs /Keogh/SEPs
□ Student Loan Interest
□ Medical Savings Account
□ Teacher Expense
□ Child Tax Credit
□ Penalty on Early Withdrawal of Savings
□ Foreign Tax Paid
□ American Opportunity/HOPE/Lifetime Learning Expenses
□ Adoption Expenses
□ Total Alimony Paid: Must have name and Social Security number of recipient, and amount paid.
□ Child Care/Day Care Credit: Must have name, address, Social Security number or EIN of provider, and amount paid.

ESTIMATED TAXES PAID:
□ Date payment was made, and the amount paid for each Federal and State quarterly tax estimate.

ITEMIZED DEDUCTIONS:
MEDICAL
□ Medical & Dental bills
□ Prescriptions
□ Glasses/Contact Lenses
□ Out-of-pocket expenses
□ Medical miles
□ Lab fees
□ Hearing Aids
□ Medical/dental/long term care insurance

INTEREST PAID
□ Mortgage interest

TAXES
□ Prior year state tax paid
□ City/local tax
□ Sales tax
□ Real estate tax
□ Personal property tax
□ Other

CHARITABLE CONTRIBUTIONS
□ Church
□ Boy/Girl Scouts
□ United Way/CFC
□ March of Dimes
□ American Heart
□ Easter Seals
□ Red Cross
□ MDA/MS
□ YWCA/YMCA
□ Salvation Army
□ FoodBank
□ Payroll deductions
□ Out-of-pocket Volunteer Expenses
□ Charitable miles
□ Other

□ List and Fair Market Value of household goods and clothing items given to Charitable Organizations.

Source: NAEA