Broker Check

July 15, 2000 

Is Time Money? 

            No, but it is worth a lot more to many workers.  In a recent Harris Poll by a margin of almost two to one, respondents said they would rather have more time off than be paid more money. 

            Today, the average employee works almost two hours more per week than in 1982 according to Bureau of Labor Statistics.  Over the same period, the percentage of married couples who both work has risen to 47% from 39%, putting even more pressure on families. 

            Given these trends, something has to give and almost half the respondents said they slept 6 or less hours per night. 

            Seventy-five percent of those surveyed also said they do not worry about job security, and almost 40% said they were living paycheck to paycheck and 70% said they were not able to save money. 

Gore Lightens Up on Taxes 

            Taxes are a hot issue in this Presidential campaign.  More tax promises are due out.  V. P. Gore, who, in the past, never met a tax increase he did not like, has even come around.  He released a bevy of new proposals including: 

  • Doubled his ten year tax cut package from his prior package to $500 billion (still less than 40% of Bush’s) 
  • A deductible contribution to a Retirement Savings Account as a supplement to Social Security.  Government would match 3:1 for people with lower incomes.  Bush prefers to let people invest part of their current social security taxes.  (In light of Harris poll in preceding paragraph, Gore’s plan will not work since people cannot save now and advocates for them to put aside more $$. 
  • Gore would reduce estate taxes by doubling the exclusions for closely held farms and businesses.  Nothing for individuals with homes, investments and life insurance.  Bush prefers to repeal the estate and gift taxes.  Gore’s plan is designed to win Farm Belt votes where he is not currently doing well. 
  • Does not advocate any income tax cuts as Bush does. 
  • Advocates relief from the marriage penalty.  Similar to, but less generous than, Bush proposal. 
  • Proposes additional tax breaks for education by creating a special $10,000 tax deduction for college or graduate school tuition.  For those not considered low income, deduction will be capped at $2,500.  Nothing for secondary school education.  Up to $2,500 of after tax payin to Education accounts.  Bush proposes to allow a $5,000 payin for college and secondary schools costs.
  • Proposes a 25% tax credit for health insurance policies for individuals and small businesses.  Bush has similar proposal plus expanded medical savings accounts. 
  • A new tax credit of up to $3,000 for Long Term care costs including cost of caring for relative in family member’s home.  Bush proposes above the line deduction for such costs and an additional personal exemption for the relative cared for at home. 
  • $500 tax credit for parents who stay at home with newborn children. 
  • A new credit for child care of children 16 and under.  Current one provides for 14 and under. 
  • Expansion of earned income and low income housing credits.

          Look for new proposals from each candidate as Election Day nears. 

          I say we are in a win-win situation.  Taxes will go down no matter who wins.  The real issue is whose taxes does a candidate want to reduce and by how much, and whether these are “targeted tax credits” for government mandated specific purposes, or “across the board” tax reduction and each person will decide how to spend the savings. 

IRS Broadens Break on Annuity and Life Insurance Exchanges 

            Last year, the IRS agreed that a direct transfer of part of a tax deferred annuity into another one was a tax deferred swap, it did not trigger a tax on the underlying earnings.  The IRS no longer requires the entire annuity to be exchanged in order to avoid tax. 

            Now, a partial exchange of life insurance contracts can escape tax, too, so says the IRS.  It will be treated as a tax deferred exchange.           

            If you think this may apply to you, that you want to swap an annuity or a life insurance policy, please call us.

IRS Loses Again in Divorce Case 

            Husband and wife each own 50% of a corporation.  Under their divorce decree, the couple agreed that the company would buy all of the ex-wife’s stock.  The corporation gave her a non-interest bearing note in exchange for her stock and the note was guaranteed by the ex-husband.  According to the Appeals Court, the gain on the redemption is tax-free.  The transaction qualifies as a tax-free transfer of assets in a divorce, even though her ex-husband wasn’t the party that purchased her shares.  In effect, the corporation purchased the stock on his behalf.  The court also ruled the imputed interest on the note escapes tax to ex-wife, too. 

Gas Prices Up-IRS says, “So What!” 

            The IRS will not change the standard mileage allowance in mid year to reflect the higher cost of gas   Maybe for January 2001. 

            If you have questions about these or any other tax and financial matters, please call us.