January 3, 1995

The following tax rates and amounts are effective for 1995:

1. OASDI rate remains at 6.2% but wage base rises to $61,200 from $60,
2. Medicare rate remains at 1.45% and there is no wage limit.
3. The maximum retirement earnings one can earn before social security benefits will start to be withheld is $11,280 up from $11,160 for those ages 65 through 69 and 8,160 up from $8,040 for those under age 65. There is no lid for 70 and older. Medicare Part B premium rises to $46.10 per month from $41.10.
4. Personal exemptions rise to $2,500 from $2,450 and exemptions will begin to phase out at $172,050 of AGI for couples instead of $167,700 for `94. For singles, $114,700 up from $111,800.
5. Standard deductions will increase to $6,550 for marrieds in `95, up from $6,350. For children age 14 who must file returns at least $650. Can be as high as $3,900 if they have earned income. The amount of investment income they can have before such income is taxed as if their parents received it, will be $1,300, up $100 from 1994.
6. Income tax rates for `95 are the same as 1994, 15%, 28%, 31%, 36%, 39.6%.
7. Federal unemployment Tax Rate (FUTA) remains at 6.2%
8. IRS interest rate on refunds rises to 8% and on taxes owed is 9% up from 6% and 7% respectively.
9. Alternative Minimum Tax rate remains at 26% on first $175,000 of income and 28% over that.
10. Back up withholding rate remains at 31%
11. 401(k) pay in limitation will rise from $9,245 by an as yet undetermined amount for 1995
12. 403(b) contribution limit might rise from $9,500. Will not rise until 401(k) contributions reach $9,500.
13. Business meal and entertainment deductibility remains at 50%.

Contract with America

          Contained within all the talk of the Republican sweep of Congress is the House Republican`s Contract with America. This is a statement of intention by several Congressmen in which they have pledged to bring legislation to the House floor (but not necessarily pass) within the first 100 days of the 104th Congress. Tax law changes are included in the Family Reinforcement Act, the American Dream Restoration Act, the Senior Citizens Fairness Act and the Job Creation and Wage Enforcement Act. Many of these proposals, if enacted, will result in lower taxes. Only one will be meaningful to the economy.

          Let us put these proposals in the proper context. Over the past year the Federal Reserve has hiked the discount rate six times for a total of two percentage points in an attempt to stifle an, as yet, unseen inflation rate. Today, it takes two years for interest rate changes to be felt through the economy, up from six months, twenty years ago when Mr. Greenspan was Nixon`s chairman of the Council of Economic Advisors. Today, we are still benefiting from the fateful decision by Bush`s Treasury Secretary, Nicholas Brady, in 1989 not to heat up the economy in order to have a buoyant economy in time for the 1992 election. President Bush concurred with Brady`s decision. Instead, Brady opted for a solid, slow growth, no inflation economy; we got that and the economic growth we are still experiencing is due to that wise decision of the Bush Administration. President Bush suffered the political consequences of the decision at the polls in November, 1992. Brady`s choice in 1989 was starting to be felt in late 1991 in the midwest and by summer of 1992 I wrote in this newsletter that I saw the real economic growth west of the Appalachian Mountains and the recession was a bicoastal defense-related phenomenon.

         Returning to today, the Federal Reserve`s actions will bring the economy into a recession within two years, just in time for the 1996 elections. Short of war, there is only one club in the government`s bag which will have an immediate effect on the economy, the reduction in the capital gains tax rate. But for this, all the other proposals are merely political sop to attract the middle class swing voter in the next election, the other tax cuts are not meaningful to the economy. But, the capital gains tax cut will cause investors to sell stocks with locked-in gains in 1995 which will immediately generate additional tax revenues which will close the budget deficit, remove the federal government from the bond market, cause interest rates to drop, make available funds for investment from those sales of stock which will in turn stimulate the stock market which will enable companies to issue more stock to attract more capital to build more facilities or to modernize and more effectively compete in the world economy, resulting in an increase in jobs and productivity.

          The only question is whether all this growth will occur before the economy starts its interest rate caused tailspin.

          I advise you to monitor these developments with regard to your personal and business financial decisions and to see through all the rhetoric to what is truly important.

          I fervently hope this is one Contract that is not broken by the Republicans.

 Top 10% pay over half of Federal Taxes

          According to an analysis of recently released IRS data the top 10% of income earners paid 55.3% of all Federal Individual income taxes in 1991 up from 48% in 1981. So much for the idea that the Reagan tax cuts benefitted the "rich".

Insurance Coverage

We urge you to take the time to have an annual review of your medical insurance coverage in view of recent increases with a view to raising your deductible or switching companies. We also urge you to consider the use of umbrella insurance coverage to reduce your automobile and homeowner`s cost of insurance. Review these policies to eliminate redundancies

          We urge you to consider disability insurance coverage.

          We also suggest you look at the insurance benefits offered by the American Express Corporate Card, specifically business overhead insurance.

          As always, if you have any questions about these or any other matters, do not hesitate to call me.