The real scandal in the accusations against Herman Cain is the corruption of the law, the media and politics.

Let’s start with the law. Some people may think the fact that the National Restaurant Association reportedly paid $45,000 to settle a claim made by one of its employees against Mr. Cain is incriminating.

Most of us are not going to part with 45 grand without some serious reason. But that is very different from the situation of an organization in the present legal climate.

The figure $45,000 struck a chord with me because, some years ago, my wife — who is an attorney — was fervently congratulated when her client had to pay “only” $45,000 in a jury award when the plaintiff was demanding a million dollars, in a case that was as frivolous a lawsuit as you could find.

The person who was suing was a drunk driver, whose car went out of control and slammed into a tree. After the sheriff’s deputies arrested her, she sued them on dubious charges, and the sheriff’s department was glad it had to pay “only” $45,000.

The department was painfully aware of the uncertainty about what ruinous costs a jury might impose on the deputies.

The real scandal goes far beyond the case of Herman Cain and his accusers. The real scandal is that the law allows people to impose heavy costs on others at little or no cost to themselves. That is a perfect setting for legalized extortion.

The fact that neither judges nor juries always stick to the letter of the law means that people who have zero basis for a lawsuit, under the law as written, can still create enough uncertainty to extract money from people who cannot afford the risk of going to trial.

As for a $45,000 settlement, that is what an organization would pay to settle a nuisance lawsuit — if they are lucky.

If we had a legal system where judges threw frivolous cases out of court, instead of letting them go to trial, that would put a damper on legalized extortion.

If those who bring charges that do not stand up in court had to pay the other party for their legal fees — and should have to pay for their time as well — these games could not go on.

It turns out that the women making televised charges against Herman Cain have past histories that do not inspire confidence, including in at least one case a history of making similar complaints against others.

Another woman who has come forward tells of Herman Cain asking her, at some conference, to see if she could locate some woman in the audience who had asked him a question, so that he could take her to dinner.

This apparently struck her as suspicious.

This too reminded me of something I knew about personally. Many years ago, I was at a conference where a woman made some very insightful comments, and I took her to lunch to continue the discussion.

It so happens she was a nun. Contrary to cynics, there is more than one reason for a man to take a woman to lunch or dinner.

The same mainstream media whose responses to proven charges against Bill Clinton was, “Let’s move on,” is not about to move on from unproven charges against Herman Cain.

What role does race play in all this?

It is probably not racism, as such, that motivates these attacks on Herman Cain. The motivation is far more likely to be politics, but politics makes a prominent black conservative like Clarence Thomas or Herman Cain far more dangerous to the Democrats than an equally prominent white conservative.

The 90 percent black vote for Democrats is like money in the bank on election day. A prominent black conservative who offers an alternative view of the world is a serious danger politically, because if that alternative view has the net effect of reducing the black vote for Democrats just to 75 percent, the Democrats are in big trouble at election time.

In this political context, merely defeating a black conservative at the polls or at confirmation hearings is not enough. He must be destroyed as an influence in the future — and character assassination is the most obvious way to do it.

To find out more about Thomas Sowell and read features by other Creators Syndicate columnists and cartoonists, visit the Creators Syndicate Web page at www.creators.com. Thomas Sowell is a senior fellow at the Hoover Institution, Stanford University, Stanford, CA 94305. His website is www.tsowell.com.

COPYRIGHT 2011 CREATORS.COM

Article source: Creators.com

 

Many Wall Street occupiers are echoing the Communist Party USA’s call to “Save the nation! Tax corporations! Tax the rich!” There are other Americans, on both the left and the right — for example, President Barack Obama and House Speaker John Boehner — who call for reductions in corporate taxes. But the University of California, Berkeley’s pretend economist Robert Reich disagrees, saying, “The economy needs two whopping corporate tax cuts right now as much as someone with a serious heart condition needs Botox.” Let’s look at corporate taxes and ask, “Who pays them?”

Virginia has a car tax. Does the car pay the tax? In most political jurisdictions, there’s a property tax. Does property pay the tax? You say: “Williams, that’s lunacy. Neither a car nor property pays taxes. Only flesh-and-blood people pay taxes!” What about a corporation? As it turns out, a corporation is an artificial creation of the legal system and, as such, a legal fiction. A corporation is not a person and therefore cannot pay taxes. When tax is levied on a corporation, who pays it?

There’s an entire subject area in economics, known as tax incidence, that investigates who bears the burden of a tax. It turns out that the burden of a tax is not necessarily borne by the party or entity upon whom it is levied. For example, if a sales tax is levied on a cigarette retailer, the retailer does not bear the full burden of the tax. Part of it will be shifted forward to customers in the form of higher product prices. The exact amount of the shifting depends upon market supply and demand conditions.

What about raising taxes on corporations as a means to get them to pay their “rightful share of government”? If a tax is levied on a corporation and if it is to survive, it will have one of several responses or some combination thereof. One response is to raise the price of its product, so customers share part of the burden.

Another response is to lower dividends, so shareholders share a part of the burden. And a considerable portion of reduced dividend burden falls on ordinary non-rich people. According to the Tax Foundation, 19 percent of federal tax returns report dividend income but 42 percent of taxpayers older than 65 report dividend income. Therefore, it is people, not some legal fiction called a corporation, who bear the burden of the tax. Because corporations have these responses to the imposition of a tax, they are merely government tax collectors.

The largest burden of corporate taxes is borne by workers. We discover that by asking a simple question, such as: Which workers on a road construction project earn the higher pay, those employed moving dirt with shovels and wheelbarrows or those doing the same atop giant earthmovers? You’d guess the guys operating the earthmovers, but why? It’s not because they’re unionized or because construction contractors have a fondness for earthmover operators. It’s because those workers have more capital (tools) to work with and are thereby more productive. Higher productivity translates into higher wages.

Tax policies that raise the cost of capital formation — such as capital gains taxes, low depreciation allowances and corporate taxes — reduce capital formation. As a result, workers have less capital, lower productivity and lower wage growth. In 1980, Joseph Stiglitz, now a Nobel laureate, said that workers share the highest corporate tax burden in the form of lower wages. A number of economic studies, including that of the Congressional Budget Office, show that workers bear anywhere from 45 to 75 percent of the corporate tax burden. Adding to the burden is the fact that capital has the kind of mobility that labor doesn’t. Corporate capital can flee to other countries easily, but workers cannot.

Politicians and leftist elite get away with corporate tax demagoguery because economists haven’t done well in making our subject understandable to ordinary people, not to mention that we have derelict news media people with little understanding.

Walter E. Williams is a professor of economics at George Mason University. To find out more about Walter E. Williams and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate Web page at www.creators.com.

COPYRIGHT 2011 CREATORS.COM

Article source: Creators.com

 

During the recent GOP presidential debate, Texas Gov. Rick Perry said that Social Security is a “monstrous lie” and a “Ponzi scheme.” More and more people are coming to see that Social Security is a Ponzi scheme, but is it a lie, as well? Let’s look at it.

Here’s what the 1936 government pamphlet on Social Security said: “After the first 3 years — that is to say, beginning in 1940 — you will pay, and your employer will pay, 1.5 cents for each dollar you earn, up to $3,000 a year. … Beginning in 1943, you will pay 2 cents, and so will your employer, for every dollar you earn for the next 3 years. … And finally, beginning in 1949, twelve years from now, you and your employer will each pay 3 cents on each dollar you earn, up to $3,000 a year.” Here’s Congress’ lying promise: “That is the most you will ever pay.”

Another lie in the Social Security pamphlet is: “Beginning November 24, 1936, the United States government will set up a Social Security account for you. … The checks will come to you as a right.” Therefore, Americans were sold on the belief that Social Security is like a retirement account and money placed in it is our property. The fact of the matter is you have no property right whatsoever to your Social Security “contributions.”

You say, “Williams, you’re wrong! We have a right to Social Security payments.” In a U.S. Supreme Court case, Helvering v. Davis (1937), the court held that Social Security is not an insurance program, saying, “The proceeds of both (employee and employer) taxes are to be paid into the Treasury like internal revenue taxes generally, and are not earmarked in any way.” In a later Supreme Court case, Flemming v. Nestor (1960), the court said, “To engraft upon the Social Security system a concept of ‘accrued property rights’ would deprive it of the flexibility and boldness in adjustment to ever-changing conditions which it demands.”

Belatedly, the Social Security Administration is trying to clean up its history of deception.

Its website (http://www.ssa.gov/history/nestor.html) says, “Entitlement to Social Security benefits is not (a) contractual right,” adding, “There has been a temptation throughout the program’s history for some people to suppose that their FICA payroll taxes entitle them to a benefit in a legal, contractual sense. … Congress clearly had no such limitation in mind when crafting the law.” That’s the SSA’s dishonesty. After all, it was the people in that administration who said, in their 1936 pamphlet, that “the checks will come to you as a right.”

There’s more deceit and dishonesty. In 1950, I was 14 years old and applied for a work permit for an after-school job. One of the requirements was to obtain a Social Security card. In bold letters on my Social Security card are the words “For Social Security Purposes — Not For Identification.” According to the SSA’s website, “this legend was removed as part of the design changes for the 18th version of the card, issued beginning in 1972.” That’s a shameless, unadulterated lie. Because we’re idiots, we’re asked to believe that the sole purpose for the removal of “Not For Identification” was for design purposes. The fact that our Social Security numbers were going to become a major identification tool had nothing to do with getting rid of the statement.

Aside from these lies, Social Security is a Ponzi scheme. The major difference between Social Security and Bernie Madoff’s Ponzi scheme is his was illegal. Three Nobel laureate economists have testified that Social Security is a Ponzi scheme. Dr. Paul Samuelson called it “the greatest Ponzi game ever contrived.” Dr. Milton Friedman said it was “the biggest Ponzi scheme on earth.” Dr. Paul Krugman predicted that “the Ponzi game will soon be over.”

Three cheers to Gov. Rick Perry for having the guts to tell us that Social Security is a monstrous lie and a Ponzi scheme.

Walter E. Williams is a professor of economics at George Mason University. To find out more about Walter E. Williams and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate Web page at www.creators.com.

COPYRIGHT 2011 CREATORS.COM

Article source: Creators.com

 

The Irish cabdriver complained almost nonstop during our half-hour drive to the Belfast International Airport. He especially worried about the job prospects for his 20-something son and, for that matter, about those for the generation of young people who face a “sh-tty” future on this beautiful island full of friendly people.

“Give me,” I finally said, “the No. 1 reason for the economic problems here.”

He looked almost stunned.

“Huh…” he said, “let me think.”

We drove silently for nearly a half-mile. Then he turned to me and said, “Too many takers — not enough givers.”

Little by little, inch by inch, drop by drop, governments both in America and in Europe began taking more and more from people, diminishing the incentive of those on both sides of the transaction — the taker and the giver. In America, nearly half of wage earners pay not one single dime in federal income taxes. Many of them trudge down to the local polling place or vote via absentee ballot — and vote themselves a raise.

The Founding Fathers conceived a brilliant document to restrain the federal government and allow maximum freedom for the people to make their own way. It leaves people the power to make their own decisions and to deal with the consequences. Almost before the ink dried, Congress tried to circumvent the Constitution.

James Madison, the fourth U.S. president and the “Father of the Constitution,” warned against using the document — especially the “general welfare” clause — to dispense money, no matter how well-intended or deserved: “With respect to the words general welfare, I have always regarded them as qualified by the detail of powers (enumerated in the Constitution) connected with them. To take them in a literal and unlimited sense would be a metamorphosis of the Constitution into a character which there is a host of proofs was not contemplated by its creators.”

When Congress appropriated $15,000 to assist French refugees in 1792, an appalled Madison wrote, “I cannot undertake to lay my finger on that article of the Constitution, which granted a right to Congress of expending, on objects of benevolence, the money of their constituents.”

“Too many takers — not enough givers.”

Hollywood left-wingers understand the corrosive effect of burdensome government on their own industry. Those working in Hollywood long complained about “runaway” productions, where other states and countries lured television and movie productions away from California by offering tax incentives and less restrictive union rules.

What did Hollywood do about this?

The industry lobbied state and city lawmakers to lower the tax and regulatory burden on production companies in order to keep the work local.

It worked. Still the left screams at “Big Oil” for taking advantage of legal tax breaks — offered to other companies — to reduce their tax burden, just as Hollywood producers try to do.

Meanwhile, an MSNBC pundit talks about the damage inflicted on the East Coast by Hurricane Irene. This shows, he said, the vital and unique role played by the federal government in disaster relief. He criticized some Republicans for wanting Irene disaster relief offset by spending cuts elsewhere in the budget. But aside from Republican-libertarian presidential candidate Rep. Ron Paul and his senator son, has anyone asked under what congressional authority does Congress take money from its citizens to pay for state “disaster relief”?

Obama, after a two-year spending and regulatory binge, has learned nothing about Economics 101. He recently nominated left-wing economist Alan Krueger as chairman of his Council of Economic Advisers. President Clinton, among others, relied on Krueger’s widely cited minimum-wage study to push for a higher minimum wage. Economists disagree about a lot of things, but there is a mighty strong consensus among them on this: Forcing employers to pay higher entry-level wages means fewer people will be hired.

Economist Milton Friedman called minimum-wage regulations among the “most anti-black” laws on the books. Why? A disproportionate number of blacks are unskilled and, therefore, are disproportionately harmed when laws force employers to pay more than the market value of labor. In fact, before federal minimum-wage laws began in the 1930s, black teens were more likely to be employed than white teens because they were willing to work for less. Bosses, no matter how racist, were more than willing to pay less for labor. Similarly, so-called federal and state “prevailing wage” laws and “living wage ordinances” disproportionately hurt low-skilled workers of color, women and others who wish to work part time. Yet like clockwork, Democrats and many Republicans pass laws to raise the minimum wage to an “affordable level,” unconcerned about the unnamed person now out of a job.

The “welfare state” chickens, as the Belfast cabbie observed, are now coming home to roost. As governments take more away from their producing citizens and give it to their nonproducers, growth stagnates and opportunities dry up.

As my eighth-grade dropout, WWII ex-Marine dad used to say, “When you try and get something for nothing, you usually end up with nothing for something.” Dad would have enjoyed chatting with the cabbie: “Too many takers — not enough givers.”

Larry Elder is a best-selling author and radio talk-show host. To find out more about Larry Elder, or become an “Elderado,” visit www.LarryElder.com. To read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate Web page at www.creators.com.

COPYRIGHT 2011 LAURENCE A. ELDER

DISTRIBUTED BY CREATORS.COM

Article source: Creators.com

 

When your banker says no, your 401(k) says yes.

New data show that employee borrowing from 401(k) plans in 2010 was way up over the previous year, in some cases in the high double digits. Jason Zweig examines the causes–and the consequences.

That is what many employees nationwide seem to think. This week, publicly traded companies have been disclosing how much their workers have borrowed from their retirement accounts—and loans from 401(k)s are way up. In a society already drunk on debt and an economy struggling to recover, people are even hocking their own retirement funds. Most of them are making a mistake.

But, crazy though it might seem, there is a case to be made for borrowing from your 401(k) account, at least in certain circumstances.

As of Dec. 31, at the retailer Target, total borrowings by employees from their 401(k)s were up 23% over the year before; at grocery chain Whole Foods Market, 34%; at the home builder PulteGroup, 51%; at Heritage Financial, a community-bank holding company in Olympia, Wash., 98%.

Altogether, according to retirement analyst Pamela Hess at Aon Hewitt, a consulting firm, 28% of participating workers had borrowed from their 401(k)s as of the end of 2010, up from 26% in 2009 and an average of around 22% earlier in the decade.

It isn’t just lower-income workers who are taking these loans. According to Aon Hewitt, 23% of employees earning between $80,000 and $100,000 have borrowed from their 401(k)s—along with 16% of those earning at least $100,000, up from 13% in 2005.

Traditionally, financial advisers have admonished workers never to borrow from a 401(k) account. That partly is because the money you invest in your 401(k) is sheltered from income tax, while you must use after-tax dollars to pay back whatever you borrow from the 401(k).

The biggest risk: If you leave your job, you must promptly pay off any 401(k) loan—usually within 60 days—or you will owe ordinary-income tax on the remaining principal amount, plus a 10% penalty.

Christophe Vorlet

While about 15% of 401(k) loan balances tend to go into default, at least 75% of the workers who leave their jobs with a 401(k) loan outstanding end up defaulting, estimates Brigitte Madrian, an economist at the John F. Kennedy School of Government at Harvard University.

One of the most dangerous temptations: There are generally no restrictions on what you can use a 401(k) loan for. Some 22% of borrowers use the money to pay for college or medical expenses, and 39% use it to consolidate or pay off higher-cost debt, according to research by Stephen Utkus, director of the Vanguard Center for Retirement Research.

But there is nothing to stop you from spending it on a binge in Cancún, a week at Canyon Ranch or a pedigreed Tibetan mastiff with a diamond-studded collar.

Still, if you have urgent legitimate spending needs or high-cost debt you want to erase, tapping your 401(k) might make sense. Although a few retirement plans charge interest rates of 10% or more on loans, the most common rate is currently just 4.25%—compared with 11% on personal bank loans and 13.4% on credit cards, according to the Federal Reserve.

Even Mr. Utkus has borrowed from his 401(k). “I’ve used it for cars, I’ve used it for housing improvements,” he says.

From your portfolio’s perspective, taking out a 401(k) loan is like adding a bond position: you are plunking down a chunk of cash in order to receive a steady stream of interest income. The difference is that the interest comes out of your paycheck, rather than from the issuer of the bond.

Borrowing from your 401(k) at 4.25% to pay down credit-card debt at 13.4% gives you a return of more than 9%, points out Ms. Hess of Aon Hewitt, even if stocks or bonds go down in value. That return is virtually risk-free, unless you leave your job before you have paid off the loan.

Say you borrow $10,000 from your 401(k) at 4.25% for a one-year loan to pay down a credit-card balance carrying an interest rate of 13.4%. If you had left the money intact in your 401(k), you might have earned a 5% return on a 50/50 mix of stock and bond funds, giving you $10,500 after a year. With the loan, your interest payments go back into your 401(k), so when it matures in a year you will have returned $10,425 to yourself.

In exchange, you have not only eliminated $1,340 in credit-card interest charges, but prevented them from continuing to mushroom. Here, taxes don’t matter, since paying off either loan requires after-tax dollars.

If this is making sense to you, please remember: Debt is always risky. And this debt carries the extra risk that you could have to pay it off at the very time when you aren’t earning a salary. If you leave or lose your job you must have a feasible means of immediately paying off the loan.

“Take only the minimum you need, not the maximum you can get,” says Ms. Hess. Your loan should fund an asset of enduring value, advises Prof. Madrian: “If you have to leave your job, you can’t sell the vacation to pay off your loan.” Don’t take a loan of last resort to splurge at a resort.

Article source: Wall Street Journal

 

One of my earliest memories of revulsion against war came from seeing a photograph from the First World War when I was a teenager. It was nothing gory. Just a picture of a military officer, in an impressive uniform, talking to a puzzled and forlorn-looking old peasant woman with a cloth wrapped around her head.

He said simply: “Don’t you understand, madam? The village is not there any more.”

To many such people of that era, the village was the only world they knew. And to say that it had been destroyed in the carnage of war was to say that there was no way for them to go back home, that their whole world was gone.

Recently that image came back, in a wholly different context, while seeing pictures of American seniors carrying signs that read “Hands off my Social Security” and “Hands off my Medicare.”

They want their Social Security and their Medicare to stay the way they are — and their anger is directed against those who want to change the financial arrangements that pay for these benefits.

Their anger should be directed instead against those politicians who were irresponsible enough to set up these costly programs without putting aside enough money to pay for the promises that were made — promises that now cannot be kept, regardless of which political party controls the government.

Someone needs to say to those who want Social Security and Medicare to continue on unchanged: “Don’t you understand? The money is not there any more.”

Many retired people remember the money that was taken out of their paychecks for years and feel that they are now entitled to receive Social Security benefits as a right. But the way Social Security was set up was so financially shaky that anyone who set up a similar retirement scheme in the private sector could be sent to federal prison for fraud.

But you can’t send a whole Congress to prison, however much they may deserve it.

This is not some newly discovered problem. Innumerable economists and others pointed out decades ago that Social Security was unsustainable in the long run, including yours truly on “Meet the Press” in 1981.

But the long run doesn’t count for most politicians, since elections are held in the short run.

Politicians’ election prospects are enhanced, the more goodies they can promise and the less taxes they collect to pay for them.

That is why welfare states in Europe as well as here are facing bitter public protests as the chickens come home to roost.

It has been said innumerable times that nobody already on Social Security will lose their benefits. But it needs to be spelled out emphatically, so that political demagogues will not be able to scare retired seniors that they are going to have the rug pulled out from under them.

Retired seniors have the least to fear from a reform of Social Security, since neither political party is about to take away what these retirees already have and are relying on.

Despite irresponsible political ads showing an old lady in a wheel chair being dumped over a cliff, the people who are really in danger of being dumped over a cliff are the younger generation, who are paying into Social Security but are unlikely to get back anything like what they are paying in.

The money that young workers are paying into Social Security today is not being put aside to pay for their retirement. It is being spent today, paying the pensions of the retired generation — and it can’t even cover that in the years ahead.

What needs to be done is to allow younger workers a choice of staying out of a system that is simply running out of money. Nor can the system be saved by simply jacking up taxes on “the rich.”

Generations of experience have shown that high tax rates that “the rich” can easily avoid — through tax shelters at home or by investing their money abroad — do not bring in as much revenue as lower tax rates that keep the money here and the jobs here.

Since the law does not allow private pension plans to be set up in the financially irresponsible way Social Security is, that is where young people’s money should be put, if they ever want to see that money again when they reach retirement age.

To find out more about Thomas Sowell and read features by other Creators Syndicate columnists and cartoonists, visit the Creators Syndicate Web page at www.creators.com. Thomas Sowell is a senior fellow at the Hoover Institution, Stanford University, Stanford, CA 94305. His website is www.tsowell.com.

COPYRIGHT 2011 CREATORS.COM

Article source: Creators.com

 

When planning for retirement, many Americans think about their pay the way they used to think about the value of real estate or stocks: that it will always go up.

Tim Foley

From SmartMoney

Use our new Retirement Planner to challenge your own assumptions.

They are mistaken. It turns out that the average person’s pay plateaus in his 40s, according to the latest data from the U.S. Census Bureau. Many people also assume they will be gainfully employed until the day they turn 65, or 62, or whichever age they plan to retire—but if they lose a job in their 50s, finding another at the same salary is difficult.

Americans are an optimistic lot—but when it comes to important financial goals such as retirement, caution is warranted. During the past few years, people who put all their money into stocks hoping for big gains or assumed their houses were piggy banks paid a steep price for their exuberance. Wages should be treated with similar skepticism: What is here today could be gone tomorrow.

If you are among those who have been assuming too rosy a future, you need to rethink virtually every aspect of your retirement plan, from the amount you can sock away each month and your investment allocations to the year you can realistically expect to retire and even the amount of Social Security you are likely to receive. What would happen if you suffered a 30% pay cut or found yourself out of work at, say, 60—five years earlier than you expected? Would you be prepared?

“You have to be wary of building in lofty expectations,” says Paul Palazzo, managing director of New York-based Altfest Personal Wealth Management. He urges clients to assume the only salary increases they will win are cost-of-living adjustments.

The numbers bear him out. Data from 2009, the most recent available from the Current Population Survey, a joint effort between the Bureau of Labor Statistics and the Census Bureau, show that income grows at a steady rate for people in their 20s and 30s. No surprise there. But once people hit midlife, the good times are over. The 40s are the peak earning years for most, when the median income for men working full-time hovers between $52,000 in their early 40s and about $54,000 in their late 40s. After that, median income barely budges—it’s still $54,000 for men aged 50 to 54. In other words, there is a 15-year plateau.

“Cost-of-living adjustments are about all they can count on after they enter their 40s, and a lot of people aren’t even getting those,” says Cheryl Russell, a demographer and editorial director for New Strategist Publications, a demographic data and analysis firm. Indeed, according to government statistics, the median earnings of men who work full-time fall 10% as they move from their peak earning years toward their retirement years. “So even if you continue to work long after you’re eligible for Social Security, you can’t count on a rise in your earnings,” Ms. Russell says.

It is tempting to think this is mainly a problem for lower-wage workers, but it also is a fact of life for higher-income managers and other professionals, say financial planners.

“The stagnation in salaries has hit all varieties of workers, from executives to middle managers,” says Brandon Ross, senior vice president at Dallas-based Peak Capital Investment Services. “That makes retirement planning more difficult.”

For example, the young manager who reaches $150,000 a year by age 45 might think his pay will keep zooming—and set his retirement strategy accordingly. But it’s likely only to keep pace with inflation thereafter.

What’s more, if he loses his job while in his 50s, it will be increasingly difficult to find another. The unemployment rate for persons 55 and older increased sharply since the beginning of the recession in December 2007, and reached record-high levels in 2009, Bureau of Labor Statistics data show. And once jobless, older workers remain unemployed longer, according to BLS data.

It’s especially difficult to find a high-paying job these days. According to a February analysis by the National Employment Law Project, a New York-based advocacy organization, only 14% of the job gains in the 12 months since the recession’s end were in higher-wage industries, compared with 49% for lower-wage industries.

The simplest way to prepare for lower pay later in life is to save more, spend less or both right now. If you behave as though your income has dropped by 20%, you can set aside the rest for retirement.

‘I Never Expected This’

Vern Pope, an engineer, always assumed he was on the path to a comfortable retirement. Two years ago, the computer-manufacturing company in Rapid City, S.D., where he had worked for 30 years closed down. Unable to find a job for a year, Mr. Pope, 55 years old, settled on a position last year that pays 25% less and forces him to live away from his wife during the week.

“I always thought that my salary would continue to rise,” Mr. Pope says. “I never expected this.”

Such tales are common. According to a May survey of older workers by AARP, 36% have stopped or cut back on their saving since the recession began, while 25% have exhausted their retirement savings.

Several factors are driving the trend toward older people earning and working less, from the sour economy to downsizing and the fact that employers have been moved to more “performance-based” pay, which often translates into smaller pay increases, as well as pay freezes.

While the financial crisis and recession have exacerbated the trend, it isn’t new. IRS filings for pension plans show that a decade ago, large employers assumed steep drops in the rate of salary growth as employees aged. Boeing Co., Hershey Co., Sears Holdings Corp. and Xerox Corp., for example, assumed salaries for a 25-year-old would increase by 7% to 13% a year, but that the rate of increase would fall steadily thereafter, generally reaching the 3% range by age 50. With inflation, this means that salaries remain flat in one’s final decade or two on the job.

Greg Scott, a senior executive at telecommunications giant Verizon Inc. with 30 years at the company, saw his salary plateau in his early 50s. In 2007, when his pension was frozen, he opted for a buyout, figuring it was certain compensation in an uncertain economy. Now working as a senior vice president of marketing at a credit union, Mr. Scott, 57, who lives in Grapevine, Texas, is making roughly half of what he earned in his old job.

“The things that were certain before the recession are just not certain anymore,” Mr. Scott says.

‘Flawed Notion’

Popular retirement-planning software often reinforces people’s lofty expectations. A 2009 study by the Pension Policy Center, a Washington-based nonprofit, examined 12 popular Web-based retirement-planning tools, including those offered by Fidelity Investments, AARP and MetLife Inc., and found that “none of them assume wages might decline,” says John Turner, who heads the nonprofit. “That is a flawed notion.”

One of Fidelity’s calculators, for example, assumes that salary will rise by 3.8% a year until retirement but that inflation will be only 2.3% a year. It is modeled on data from the 1980s to the 2000s, says Chris McDermott, Fidelity’s senior vice president for retirement and financial planning.

The tools do allow investors to tinker with the assumptions manually, Mr. McDermott says, but pay growth can’t turn negative. “It’s a default assumption,” Mr. McDermott says. “We want people to be able to play around on their own. It’s about engaging them in the conversation.”

A surprise pay cut later in life also can lead to lower Social Security benefits. If someone who turned 66 in January 2011 had earned the maximum amount covered by Social Security since 1975 ($14,000, rising to $106,800 today), he would get the maximum benefit, about $28,400 a year. If his earnings in the final 10 years fell to $50,000, the person would receive $26,300. And if he made the maximum amount for 30 years, then lost his job and didn’t work the final five years, the benefit would be $26,240.

These drops may not seem drastic, but when combined with lower savings rates they can squeeze retirement spending more than many people expect, says Jean Fullerton, a financial adviser in Bedford, N.H., who ran these calculations.

For people who earned a decent wage during their early working years, Social Security might not be affected much by a late-career pay swoon. That is because the benefit is based on one’s 35 highest-earning years, inflation adjusted. So the $14,100 earned in 1975 counts as $58,238 in today’s dollars credited toward your benefit, says Ms. Fullerton—which means that recent years at little or no earnings could be filled in with earnings from your 20s.

On the other hand, people who worked their way through college or graduate school before landing their first professional job, toiled for years at low wages before striking it big in their 30s and 40s, worked overseas for long periods for non-U.S. employers or dropped out of the work force to raise families won’t gain as much from those early working efforts.

How to Plan for Lower Pay

For many people, their current retirement-savings strategy is merely a best-case scenario. You should also identify a worst-case scenario—such as a 20% pay cut during your final 10 years in the work force. Then, you could try to live on that lower income and put the rest into savings. If your disaster scenario plays out, you will be prepared—and if it doesn’t, you will be sitting on a bigger pot of gold come retirement time.

Of course, this approach might require you to forgo such dreams as footing your kids’ college bills. One alternative: Tell your kids to take out student loans, and promise to pay them off if you are able to make it to retirement unscathed.

Another way to build savings as long as possible is to delay retiring, even if it means working for lower pay. The longer you remain in the work force, the longer your savings will last and the higher your Social Security payments will be. Someone receiving $1,700 a month at age 62 might receive $2,400 a month at 66. If he delayed taking Social Security until age 70, he would receive delayed retirement credits that would boost the monthly payments to $3,200 a month.

This year, the Social Security Administration stopped issuing annual statements of estimated earnings, but it provides an online tool at www.ssa.gov/estimator that lets you see the benefit you have earned thus far and plug in estimated retirement ages and various scenarios for your future earnings, whether greater or lower.

When you turn 50 or so, you should assess your employability. If you anticipate difficulty keeping a job in your industry, you might even consider getting into a second profession. “Changing careers, almost anyone would take a financial hit, so they either need savings or a working spouse to make the transition,” Ms. Fullerton says.

Ms. Fullerton took that calculated risk at age 50. She had a comfortable job as a software engineer at Digital Equipment Corp., but worried that it couldn’t last. “The workload was doubling as the company cut back, and more jobs were being outsourced to India,” she says. So while working, she took courses at night and became a financial adviser. She now is financially as well-off as she was before, and has greater job security.

For the same reason, you should delay taking a monthly pension until your company’s full retirement age, advisers say. And when you do begin taking it, make sure your employer isn’t shortchanging you.

Many large companies estimate what you will receive in Social Security benefits and subtract half that amount from your pension. But they may overestimate what you will receive from Social Security, reducing your pension too much. That is because they assume their current and former employees work 35 years and that their pay grows at a certain rate. You have the right to have your employer calculate your pension using your actual earnings history.

Such strategies might seem like a radical departure from the classic “save 10% of your income” strategy financial advisers used to push. Then again, “all the maxims of retirement have totally changed,” says Mr. Scott. “You can’t play by the same old rules.”

By ELLEN E. SCHULTZ And JESSICA SILVER-GREENBERG

Article source: Wall Street Journal

 

Most of our nation’s problems are a direct result of our being immune, hostile or indifferent to several moral questions. Let’s start out with the simple and move to the more complex. Or, stated another way, let’s begin with questions that generate the least hostility, moving to those that generate the greatest.

If a person benefits from a hamburger, a suit of clothing, an apartment or an education, who should be forced to pay for it? I believe the question has only one moral answer, namely the person who benefits from a good or service should be forced to pay for it, that’s if we wish to distinguish ourselves from thieves who only care about enjoying something and who pays is irrelevant.

Aside from the moral question is the economic efficiency question. If the user of something isn’t paying, it’s a good chance that he’ll overuse and waste it. Our country’s problem is that too many Americans want to benefit from things for which they expect other Americans to be taxed.

A related moral question is: Does one American have a moral right to live at the expense of another American? To be more explicit, should Congress, through its taxing authority, give the Bank of America, Citibank, Archer Daniels Midland, farmers, dairymen, college students and poor people the right to live off of the earnings of another American? I’m guessing that only a few Americans would agree with my answer: No one should be forcibly used to serve the purposes of another American.

You might say, “Williams, if Congress makes it a law, then you should submit to being used to serve the purposes of others.”

Such a vision introduces the next moral question, namely under what conditions is it moral to initiate force and threats of force against a person who himself has not initiated force or threats against another? Before that question can be answered, you might ask for a bit more specificity that has an important bearing on the answer, namely are we talking about a free or a non-free society?

In a free society, there’s no moral case that can be made for the initiation of force against one who hasn’t himself initiated force against another.

But that’s a societal ideal that might be beyond our reach here on Earth. After all, we have delegated certain rights to government to provide certain services, as enumerated in the U.S. Constitution, particularly as specified in Article I, Section 8 of the document. Each American is duty-bound to pay his share.

So a case can be made for the initiation of force against one who refuses to pay his share of those expenses. If an American says that he’ll pay his share of those constitutionally mandated functions of the federal government but refuses to give up his earnings to be used for handouts to the Bank of America, Citibank, Archer Daniels Midland, farmers, dairymen, college students and poor people, should some kind of force be initiated against him?

I am all too afraid that most of my fellow Americans would answer, “Yes, some kind of force, fines or imprisonment should be initiated against a person who refuses to give up his earnings for the use of another.” Their only source of disagreement would be just who had the rights to another’s earnings.

Some would argue that farmers and dairymen don’t have a right to another’s earnings, but students and poor people do. Others would argue the opposite.

French economist Frederic Bastiat (1801-1850) said, “Government is the great fiction through which everybody endeavors to live at the expense of everybody else.” That endeavor has plagued mankind throughout his history and has now reached a crisis stage in Western Europe and the United States, and the prospects for reversing it don’t appear to be promising.

Walter E. Williams is a professor of economics at George Mason University. To find out more about Walter E. Williams and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate Web page at www.creators.com.

COPYRIGHT 2011 CREATORS.COM

Article source: Creators.com

 

The outlook for summer jobs for young people remains cloudy. Although the unemployment rate of 17.3% for workers ages 16 to 24 was down slightly in May compared with the 18% rate of a year ago, it was still far higher than the pre-recession level of 9.9% in May 2007, according to the Department of Labor.

The good news, for those who can find—or invent—jobs for themselves this summer, is that Uncle Sam’s tax rules may offer opportunities for savings.

The most favored young workers are children under 18 who are hired by parents to work for sole proprietorships or husband-and-wife partnerships. Both the children and the parents can skip Social Security or Medicare tax on the child’s pay, which this year comes to 13.3%. There is no limit on this exemption, and the workers also aren’t liable for federal unemployment tax.

What’s more, the business owner can take a deduction for the child’s pay, and the teen usually won’t owe taxes on income up to the standard deduction, which is $5,800 for individuals this year. Total tax-free income swells to $10,800 if the child puts the next $5,000 of pay into a tax-deductible individual retirement account, says Don Williamson, a tax expert with American University’s Kogod Tax Center in Washington. Mr. Williamson has helped several families take advantage of this boon.

There are ground rules, of course. Compensation has to be fair enough to escape an Internal Revenue Service agent’s scrutiny, so be prepared to provide examples of comparable pay. But if Junior has whiz-bang skills in Web design or programming, he or she can be paid at the going rate or a bit more.

Summer workers who are older or who can’t work for a family business may reap other tax benefits. But there are traps for the unwary. Here are tips from tax experts:

• Know your status. Young workers often don’t know whether they are employees or independent contractors, says Robert Gard, an Atlanta-area CPA with Gard LaFreniere LLC. There’s a big difference: Unlike employees, contractors don’t have income or payroll taxes withheld, so they (or their parents) may have an unpleasant surprise when a 1099 form arrives and taxes are due the following spring. While income taxes don’t usually kick in until $5,800, the payroll-tax threshold is $400.

Mr. Gard and others also suggest independent contractors track deductible expenses such as mileage or uniforms while working, because they can be hard to reconstruct later.

• Pay attention to the W-4 form. If the worker is an employee whose total earnings for the year won’t incur income taxes, he or she should file a W-4 form claiming exemption for withholding. That avoids having to file a return to reclaim tax payments the following year. Appropriate payroll taxes will still be withheld.

• Take advantage of IRA options. Workers may contribute earned income up to $5,000 to traditional or Roth IRAs, which offer tax-free growth. Contributions to a traditional IRA are tax-deductible but withdrawals are taxable, whereas Roth contributions aren’t deductible but withdrawals are often tax-free. Given that young workers usually have low tax rates, a Roth IRA is often the better long-term deal.

Experts say funding an IRA can be a terrific gift by a loved one to a young worker. “It provides tax shelter and teaches something about savings as well,” says Joe Kristan of Roth Co. in Des Moines, Iowa. Deborah Fox, of Fox College Funding in San Diego, says that for financial-aid purposes, a gift used by a young worker to fund an IRA is considered student income in the year it is given. After that, IRA assets are off-limits.

• Keep “kiddie tax” effects in mind. “Unearned” income such as interest, dividends or capital gains greater than $1,900 received by children is often taxed at the parents’ rate, and this can continue up to age 24 if the child is a full-time student. But this provision doesn’t apply if the child is between 18 and 24 and has earnings that are more than half of his or her support.

In addition, a child liable for this tax who also earns income must file a separate tax return. If the child has no earnings from work, the parents often have the option of claiming the income on their own returns.

Experts say it often is better to file a separate return for the child anyway, because that avoids raising the parents’ adjusted gross income, which can clip other benefits.

• Know the rules on paying children for work at home. What if Junior can’t find a summer job but you want to pay him or her to paint the house or do other work? According to IRS spokesman Eric Smith, there is a break here for children under 21: No federal payroll taxes or unemployment taxes are due on the payments.

Here the parent can’t take a deduction for the pay, as would be possible if the child were working in the parent’s trade or business, but the child could skip income tax at least up to the standard deduction and would be eligible for an IRA. For more information, especially about required record keeping, consult a tax professional or see IRS Publication 15.

By LAURA SAUNDERS

Article source: Wall Street Journal

 

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Next year, you’ll likely pay more for your workplace health benefits, but you may have to read the fine print to figure out where the bite will come.

As companies head into open-enrollment season, when they let employees pick their plans for next year, many firms say they are reluctant to boost health-care premiums too sharply at a time when wages are stagnant. Instead, workers can expect to pay significantly more for such out-of-pocket items as deductibles, co-payments and other fees.

Employees’ charges next year are expected to jump 10.1% from 2008, to an average of $1,880, according to a recent projection by Hewitt Associates, a benefits consulting firm. By contrast, health-care premiums are expected to rise 7.8%, after posting double-digit percentage gains in four of the last five years. In 2008, out-of-pocket costs also increased 10.1%.

Workers are generally on the hook for various fees whenever they visit a doctor, fill a prescription or go to a hospital. These costs can vary depending on the type of health plan they choose. Hewitt says the average employee spends only about five to 15 minutes on open enrollment, and nearly two-thirds of workers select the same option they picked the previous year. So many people may not notice any new charges, which often aren’t as obvious as changes in premiums. Of course, they’ll probably figure it out once they start getting bills.

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• Patient Care CEO Jane Cooper offers advice on choosing a health plan

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• Health Benefit Plans: More Premiums and Audits

Enrollment 101

When choosing your health plan for next year, the best resource is probably the material your employer provides. But there are other places to go for information and help deciding on a plan.

A Web site co-sponsored by insurer Aetna that offers some tools for evaluating plans:

http://www.planforyourhealth.com/openenrollment/

A tool for figuring out likely costs, this one from insurer UnitedHealthcare:

http://www.healthevaluators.com/pce/welcome.aspx

Web sites with general primers on private health insurance:

http://www.healthinsuranceinfo.net/managing-medical-bills/

http://www.healthcarecoach.com/

http://www.ahip.org/content/default.aspx?bc=41|329|20888

A glossary of health-insurance terms:

http://www.healthinsurance.org/glossary/#P

Web sites with information about health savings accounts:

http://www.treas.gov/offices/public-affairs/hsa/faq_basics.shtml (The U.S. Treasury’s background information)

http://www.hsainsider.com/

http://www.HSAFinder.com

http://www.ehealthinsurance.com

Lauralee Schiraga, a nurse from Brewster, Mass., says she was surprised when she was billed $250 last month for a breast biopsy that had been done to check on a suspicious mass. Around the same time, she got another $250 charge, this time for an endoscopy ordered by her doctor after she had digestive problems. She called her health insurer and was told the bills were her co-payments for the out-patient procedures.

“It never occurred to me for one second they would charge me $250 for an outpatient procedure,” says Ms. Schiraga, who says she could only afford to send $50 initially to each hospital. “I was beside myself.” Afterward, when she closely reviewed the benefits information from her employer, she found the co-payment listed in the middle of a page full of small text. Next year she plans to set aside money for such expenses.

Employers say another reason they are raising fees at a faster pace than premiums is fairness: Higher fees place a greater cost burden on workers with the highest expenses. Forcing employees to pay charges out-of-pocket also makes them more aware of how expensive medical services really are, some employers say.

“Folks don’t know how much things cost,” says Robert Meyer, vice president and co-owner of Johnstone Supply of Atlanta, a wholesaler of heating and cooling equipment. “Health care is one of the few things your average consumer doesn’t shop for.”

Starting last month, Johnstone sharply increased the maximum employees are required to pay out-of-pocket for self-injectable drugs, such as the rheumatoid arthritis treatment Enbrel. It raised co-payments only slightly, and didn’t boost employee premiums. Johnstone also began for the first time requiring all of its workers to pay a deductible, which will be $2,500 for an individual. The company plans to offset the cost of deductibles through health-reimbursement arrangements, which are tax-advantaged accounts that allow employers to set aside money for workers’ health expenses.

Getty Images

Linda Hoffman and her granddaughter, Riley Bulnes, 4, pick up prescriptions from a Publix Supermarket in Miami, Florida.

Higher costs can prompt some people to forgo care that may be needed. A forthcoming survey by human-resources consultant Watson Wyatt Worldwide, which tallied 2,487 American workers this spring, found that cost concerns had driven 17% of them to skip a recommended doctor visit. The same percentage had failed to fill a prescription or had skipped doses.

If you are choosing your workplace health plan soon, here are some things to watch.

Paying Your Share

For services such as doctor visits, hospital stays, outpatient procedures and imaging scans, keep an eye out for higher co-payments. These can kick in whether you are in a traditional preferred provider organization plan, which offers more coverage for care provided by preferred doctors, or a health-maintenance organization plan, which traditionally requires participants to use approved physicians for nearly all services.

Also be alert for shifts from flat co-pays to co-insurance charges, which typically require you to pay a percentage of the total cost of a service and often take far more out of your wallet.

Briggs Stratton Corp., a Milwaukee-based maker of small engines and lawn mowers, has done away with most co-payments in its main plans — a standard preferred-provider organization and a high-deductible option. In the standard PPO, workers pay 20% for all medical services with providers in the plan’s network, including doctor visits. That comes with an in-network, out-of-pocket annual maximum of $5,500 for an individual and $11,000 for a family. “There’s a much better case for shopping around” among medical providers if employees are paying a percentage of the cost of care, rather than a flat co-pay, says R. Craig Reynolds, the corporate director of employee benefits.

Fees can be structured in different, and sometimes confusing, ways. Some employers’ plans may demand a co-payment for each day you’re in the hospital, while other plans levy a fee for each stay. Ken Goulet, president of WellPoint Inc.’s commercial business unit, warns that in certain employer plans, a hospital admission may require a co-payment, and then separate co-insurance charges for services during the hospital stay. “Don’t just think, ‘Wow, a $200 co-pay, this is great,’” he says. “It may not just be a co-pay.”

Some employers also are raising the maximum workers are responsible for paying in out-of-pocket costs each year. One tricky twist is for the annual deductible not to count toward that cap, sharply increasing the total you could spend.

Taking Your Medicine

Keep a close eye on your medications. Most employees by now are accustomed to paying less for generics than for brand-name drugs. But if your employer tweaks the design of the drug benefit, the changes may have a substantial impact on your costs, or even knock your drug off the approved list altogether. In a recent employer survey by the Kaiser Family Foundation and the Health Research Educational Trust, 41% of those offering health benefits said they were very or somewhat likely to increase workers’ drug expenses in the next year.

Drugs injected in a doctor’s office, which are often high-priced medications for such diseases as cancer, are one area to watch. Some plans that have lumped these in with the co-pay for physician visits may now charge separately for the medicine.

Eric Smith, a middle-school technology teacher in Dalton, Ga., who gets his health benefits through a state agency, has to pick a new HMO this fall because his plan will no longer be offered next year. He expects his premiums to go up by about $12 a month. But his drug costs will rise much more sharply, by more than $50 a month, mainly because of two brand-name medicines he takes that aren’t on the state’s preferred list; he says cheaper alternatives didn’t work as well. “That just negated my raise this year,” he says.

Filling Your Needs

Check for coverage of any care you know you will need; don’t assume it is included. Some employers looking to limit costs may trim certain benefits, though this isn’t expected to be widespread. Consultants say they’ve seen some clients cut back in areas including physical therapy and speech therapy. You should watch for limits on equipment such as hearing aids and prosthetics.

Once you’ve done your due diligence on the coverage options, decide what’s best for you. You may opt for a plan with more out-of-pocket charges and a lower premium. At the most extreme, there are high-deductible plans paired with health-savings accounts, a model being pushed by many employers but slow to catch on with workers. The key is to understand the real costs and coverage you get with each of the plan options.

McDonald’s Corp., for instance, offers its 18,000 eligible U.S. employees three different PPOs. The most popular is the one with the highest premiums, but no deductible and a flat co-pay for doctor visits. The plan with the lowest premium comes with a $1,000 deductible for a single employee and a company-funded health-reimbursement arrangement. In the middle is a plan with a $250 deductible and a 20% co-insurance charge for in-network doctor visits. McDonald’s offers online tools to help employees choose. Says Bob Wittcoff, the company’s senior director of global benefits: “One size does not fit all.”

Article source: Wall Street Journal