Earlier this month I completed filing my taxes for the 2011 tax year, and all taxpayers had to have their returns filed by tax day April 17th.  As we all decompress from hours spent figuring out our taxes, and planning for the coming year’s filing, there is something big looming on the horizon at the end of the year.

Some folks are calling the end of the 2012 tax year “Taxmageddon” or  a “Tax Armageddon” because a whole host of tax credits, tax cuts, deductions and other tax provisions are all expiring at once, meaning that American families could be seeing a huge tax increase in 2013, unless something is done.

Why Would We Be Seeing a Big Tax Increase In 2013?

So the question is, what is going on, and why will we be seeing a big tax increase in 2013 if nothing is done?

As many Americans were scrambling to get this year’s taxes done, analysts were warning about a bigger tax day — what some call a tax Armageddon, or “Taxmageddon,” to characterize its potential effect on the U.S. economy.

At the end of the year, some $500 billion in tax breaks expire all at once, hitting American households with an average tax increase of $3,800 — if Congress doesn’t act….

“Almost the entire tax code has been put on a year-to-year lease, and in some cases, month-to-month lease, which is no way to run a tax system,” Scott Hodge of the Tax Foundation said.

The expiring cuts would hit all income groups but those at low and middle incomes the hardest.

“Taxmageddon falls 70 percent on middle and low income families. That’s because 60 percent of the Bush tax cuts were for middle- and low-income taxpayers,” Dubay said. The payroll tax cut was aimed at the same taxpayers.

“No American will be unscathed at the end of this year,” Hodge said. “Taxmageddon hits all of us.”

So the host of expiring tax breaks will mean huge tax increases, a majority on middle and low income families, if  Congress doesn’t act.

What Tax Breaks Are Expiring After 2012?

So what are the main tax breaks expiring at the end of  2012?

Among the changes that we could see:

• Tax rates increase:  Bush/Obama tax cuts expire.  A bottom rate of 10 percent goes to 15 percent.  A top rate of 35 percent would increase to 39.6 percent.
• Child tax credit decrease: The $1000 child tax credit would be halved, going from $1,000 a child to $500.
• The marriage penalty would return: The standard deduction for married filers would no longer be twice that of a single filer – re-engaging the so called “marriage penalty”.
• Tax on dividends increase: The tax on dividends (which many seniors rely on) would go from 15 percent to 39.6 percent.
• Payroll tax cut ends: The payroll tax cut which was extended for 2012 would expire, meaning an increase in taxes for all those who pay taxes. The average taxpayer saw a $1000 decrease in taxes due to this cut.
• Alternative minimum tax fix would erased: The result of the fix expiring would mean that some 34 million taxpayers would be affected by AMT next year.

Will Congress Act To Avoid All The Tax Provisions Expiring At Once?

So the question is, will congress act to avoid seeing a huge tax increase at the beginning of next year?

With all that facing the economy, wouldn’t Congress act? Ordinarily, yes — but this is a presidential election year.

“It’s my guess that nothing will happen on any of these issues until after the election,” Hodge said. “Here we have a case where many in Congress will be retiring, maybe even a president. How do you fix system with that uncertainty?”

And Capretta adds, “it’d be hard for an old … outgoing Congress to make decisions when a new Congress is about to come in. And I think the public might react a little badly to that as well.”

Nevertheless, one congressional source says the chances of a lame duck session are 100 percent: Congress can’t afford to take the end of the year off.

So it sounds like odds are good that Congress will act in some way to re-enact or extend at least some of the provisions so as to avoid the huge increase for everyone. Until that happens, however, there will be quite a bit of uncertainty.

Do you think that Congress will act to extend the expiring tax breaks?  Will they let them expire?  Will they create new ones?  Tell us your thoughts in the comments.

• Deal Reached Between President Obama And GOP On Extension Of Bush Tax Cuts
• The Bush Tax Cuts Are Expiring. Will The 2011 Tax Hikes Bring On A Double Dip Recession?
• Payroll Tax Cut Extended Through The End Of 2012
• Will There Be A 2012 Payroll Tax Holiday, Or Will An Extension Be Blocked And Taxes Rise In 2012?

This evening we heard President Obama announce the news that Osama Bin Laden had been killed in a U.S. lead attack on compound near Islamabad, Pakistan.  Apparently Bin Laden had been hiding in a mansion there near the capital city, and not in Pakistani tribal regions as some had thought.  While that news is certainly embarrassing for Pakistani security forces, the news certainly is very welcome to all freedom loving peoples across the world. People are celebrating in the streets in Washington, D.C., and across the country.

While the news of Bin Laden’s death means that justice has finally been served in the global war on terror, and for the 9/11 families, one thing I’m interested to see is the effect that the news of Bin Laden’s death will have on the markets.

What Effects Will The News Of Osama’s Death Have?

I’m already reading news on the wires talking about how there will be some positive effects in the markets because of Bin Laden’s death, while some other commodities markets – like the oil markets – may be more volatile in the short term.

The dollar rebounded from three-year lows and U.S. crude slid more than 1 percent on Monday on the back of news that a U.S.-led operation killed Osama bin Laden in Pakistan.

U.S. stock index futures SPc1 added to gains, while U.S. Treasury yields rose across the curve after U.S. officials said the body of Al Queda’s elusive leader has been recovered by U.S. authorities.

“By lowering national security risks overall, this is likely to bolster equity markets and lower US Treasury prices in a reverse flight to quality movement,” said Mohamed El-Erian, Chief Executive Officer and Co-Chief Investment Officer at PIMCO, which oversees $1.2 trillion assets.

“Oil markets are likely to be the most volatile given their higher sensitivity to the tug of war between lower risk overall and the possibility of isolated disturbances in some parts of the Middle East and central Asia,” he said.

Other commodities markets are also showing declines.  From MSN Money:

Meanwhile, crude oil for June delivery was down $1.56 to $112.37 a barrel late Sunday. Gold dropped $10.70 to $1,545.70 an ounce. Silver for July delivery was down $5, or 10.5%, to $43.60 an ounce.

So from the sounds of it, at least in the short term, the news is showing a positive effect in the stock markets globally.  Of course most are saying to temper your enthusiasm as gains are likely to be only temporary.

Other markets are showing a bit more volatility because of how unsure the whole middle east region is currently. There is unrest in so many countries even before this news broke, and add to that the news of Bin Laden’s death and the possibility of a retaliatory attack by Al Qaeda operatives is increased. That leads to some unsure markets.

Conclusion

Hopefully Bin Laden’s death will only be the start of the end of global terror in general, although I’m still part of the camp that is afraid we could see attacks going forwards, especially in the aftermath of today’s news.  I pray that won’t be the case.

For now, I’ll be celebrating that he has been brought to justice, and the thousands that he killed and had a direct hand in killing – will now have justice of some kind.

Update: As of this afternoon, yesterday’s news seems to have had little impact on the markets at all. From CNN:

If you were expecting a big rally Monday on the bin Laden news, guess again.Stocks initially rose, but it was hardly a euphoric move. By early afternoon, the market was flat. That makes sense.

Let’s be honest. It’s not as if the market had been held back as of late because Osama bin Laden was still on the loose.The death of bin Laden doesn’t really change anything for the financial markets or economy. Talk all you want about how this may boost confidence. But that’s a touchy-feely intangible that gets too much attention.

“There’s no long-term impact from bin Laden’s death. There may not even be that much of a short-term impact,” said Jack Ablin, chief investment officer with Harris Private Bank in Chicago.

What do you think the effects of the news of Bin Laden’s death will be on the markets?

• Taxmageddon: Will We See A Huge Tax Increase Due To Expiring Tax Breaks At End Of 2012?
• Deal Reached Between President Obama And GOP On Extension Of Bush Tax Cuts
• The Bush Tax Cuts Are Expiring. Will The 2011 Tax Hikes Bring On A Double Dip Recession?
• Democrats Hope To Pass A Second U.S. Stimulus Bill By Early 2010

On December 17th 2010 Congress and the Obama administration pushed through their 2 year temporary tax cut package that mean we will keep the same Bush tax rates for at least the next 2 years, in addition to passing a 2011 payroll tax holiday, extending $1000 child tax credit and the estate tax.

While I’m happy that the tax rates were extended so I won’t have to pay more in taxes next year, there is a problem with when the tax package was passed.   because of how late in the year the bill was passed, people who itemize will experience tax filing delays.

Delay Filing Taxes If You Itemize

The IRS has put out a statement saying that the estimated 50 million+ taxpayers who itemize their deductions when filing will not be able to e-file or send in their paper tax forms taxes until  the agency has been able to make all the necessary changes to the IRS software systems.  From the IRS:

The Internal Revenue Service plans a Feb. 14 start date for processing tax returns delayed by last month’s tax law changes. The IRS reminded taxpayers affected by the delay they can begin preparing their tax returns immediately because many software providers are ready now to accept these returns. Beginning Feb. 14, the IRS will start processing both paper and e-filed returns claiming itemized deductions on Schedule A, the higher education tuition and fees deduction on Form 8917 and the educator expenses deduction. Based on filings last year, about nine million tax returns claimed any of these deductions on returns received by the IRS before Feb. 14.

So those of us who itemize on our taxes,  the IRS won’t start processing our returns until February 14th.

While having an estimated 50 million taxpayers who itemize their taxes not being able to file til February sounds bad, only about 9 million of those usually file in January in February most years anyway.

Does The Tax Filing Delay Affect Everyone Or Just Some?

If you itemize on your taxes, you will be affected.  If you don’t, you’re good to go.

The delay affects both paper and electronic filers who itemize deductions on Form 1040 Schedule A. That includes those claiming the new Educator Expense Deduction, which credits grade school teachers for out-of-pocket expenses of up to $250.

It also includes those claiming deductions for college students, covering up to $4,000 of tuition, which is claimed on Form 8917, though the IRS said there will be no delays for those that claim other education tax credits.

If you file a form 1040 Schedule A, you’ll be affected.  I guess that includes me, although to be honest I usually end up waiting til the last minute anyway.

Most Software Allow You To Complete Your Return Now

While you can’t file your return until February 14th, if you’re using one of the many tax software out there, you can probably already complete your tax return as of today.  While those companies, like TurboTax, Complete Tax and H & R Block at Home, won’t file your return until the 14th of February, you can enter your return at any time.  They’ve already updated their software to account for the new law. Apparently they can move at a faster pace than the government.  From USAToday:

At TurboTax, for example, customers’ returns will be placed in a queue until the IRS starts accepting them. Customers will receive a notice when their returns are e-filed, as well as an estimated date for their refund, says TurboTax Vice President Bob Meighan. H&R Block, CompleteTax and TaxACT will also hold on to customers’ returns until the IRS starts accepting them.

Another advantage to this strategy is that you may not have to wait to get your state tax refund. TurboTax, TaxACT and CompleteTax say they’ll e-file state tax returns before Feb. 14 when possible. H&R Block is holding tax software customers’ federal and state tax returns until Feb. 14, according to spokesman Brian Spano.

So the tax software companies will hold onto your return and only submit them once they’re able to. Makes it easy for you!

Also, another perk of doing it this way is if you’re due a refund from your state, some states may allow filing earlier than February 14th. If your state is one of them, then you may get your state tax refund before your federal one.

My Experience

TurboTax is the software I used last year to file my taxes, and I highly recommend it because of it’s ease of use, and comprehensive approach.   It has several different packages to choose from – I chose TurboTax Deluxe as it works nicely for my small business scenario – and Schedule C income.  Check out all of your filing options at their site.

Also, find out if you’re eligible to file your taxes for free this year through the link below!

• How To File Your 2010 Federal Taxes For Free In 2011

Other Important Tax Considerations This Year

• Checklist Of Things You’ll Need At Tax Time In 2011 For Doing Your 2010 Taxes
• Tips For Self-Preparing And Filing Your Income Taxes
• How To Check The Status Of Your Federal And State Income Tax Return
• 2011 Federal Income Tax Brackets: IRS Marginal Tax Rate Changes To Be Aware Of

Will you be affected by the filing delay this year, or do you normally file later than February 14th anyway?  Does it depend on if you’re getting a refund or if you owe?

• Taxmageddon: Will We See A Huge Tax Increase Due To Expiring Tax Breaks At End Of 2012?
• What Should I Do If I Can’t Pay My Taxes? What Options Do I Have?
• Tax Tips Every Dad Should Know
• 3 Ways To Ensure A Fast Tax Refund

Over the past year or so we’ve been talking on this site quite a bit about the 2001 and 2003 Bush tax cuts, and whether or not they would be renewed in some form before they expire on December 31st.  We looked at what would happen to the tax rates if they weren’t renewed, and explored some of the alternative plans that were floated by members of congress.

While I’ve thought for some time that Congress would probably act to get something done on the tax cuts, as we get closer and closer to the end of the year I’ve started to have my doubts.  Last night, however, President Obama announced that a deal with Congressional Republicans had been reached to extend the tax cuts for everyone.  In return the Obama got concessions on extending unemployment insurance for another 13 months.  Here is Obama announcing the deal.

Bush Tax Cuts Extended If Deal Is Approved

So President Obama and Congressional Republicans have come to agreement in principal on extending the tax cuts.

President Obama and congressional Republicans agreed Monday to a tentative deal that would extend for two years all the Bush-era income tax breaks set to expire on Dec. 31, continue unemployment benefits for an additional 13 months and cut payroll taxes for workers to encourage employers to start hiring.

Obama was able to extract an agreement from GOP leaders to support an additional 13 months of jobless benefits, a 2 percent employee payroll tax cut and extensions of several tax credits aimed at working families that were included in the stimulus bill.

The deal has been in the works for more than a week and represents a concession by Obama to political reality: Democrats don’t have the votes in Congress to extend only the expiring income tax breaks that benefit the middle class. The White House estimates that the proposed agreement would prevent typical families from facing annual tax increases of about $3,000, starting Jan. 1.

What’s In The Deal To Extend The Tax Cuts

So what exactly is in this deal that was approved by Obama and Congressional Republicans?

• Extension of Bush tax cuts for everyone, for 2 years.
• Reduction of Social Security tax levied on a worker’s wages from 6.2%  to 4.2% for one year.
• Reinstatement of the estate tax at 35%.  First $5 million for individuals and $10 million for couples is exempt.
• Extension of jobless benefits for another 13 months, beyond current 99 weeks.
• Extension current tax rates on capital gains and dividends for two years, including for higher earners.
• Extension of business tax breaks, including credit for spending on research.

Not Everyone Happy  With The Deal

By coming to agreement on extending unemployment benefits and extending the tax cuts Obama hopes to be seen as someone who can work with the other side, and make concessions when the political reality forces him to.  Many congressional democrats aren’t happy with the deal, however.

In reaching the deal, whose details still need to be worked out, Mr. Obama brushed past the demands of many in his own party to curb tax cuts for the wealthy. Some liberal lawmakers and activists were left seething, particularly over last-minute concessions to Republicans on the estate tax. Democratic leaders didn’t agree to the deal during meetings on Monday with Mr. Obama and Vice President Joe Biden, according to a House aide.

“I can tell you with certainty that legislative blackmail of this kind by the Republicans will be vehemently opposed by many, if not most, Democrats,” said Rep. John Conyers (D., Mich.).

In the Senate, Tom Harkin (D., Iowa) called it “an understatement” to say he was disappointed.

So what else was approved by Obama and Republicans as part of the deal?  The estate tax would be reinstated for certain folks.

The deal also would revive the estate tax, but it would exempt inheritances of up to $5 million for individuals and $10 million for couples. Democrats on Capitol Hill are strongly opposed to setting the cap at that high a level and to the 35 percent rate discussed by Obama and Republicans that would apply to the taxable portion of estates.

Will The Deal Be Passed By Congress?

Obama expressed that it was important that a deal get done, and the White House will be sending Vice President Biden to discuss the deal with Senate Democrats today.

In brief remarks Monday evening, Obama said he was disappointed that the deal would extend breaks for the wealthiest households, but he warned Democrats not to make good on threats to allow all the cuts to expire, as an expression of the party’s opposition to preserving the top-rate cuts. “Sympathetic as I am to those who would prefer a fight to compromise, it would be the wrong thing to do,” the president said. “The American people didn’t send us here to wage symbolic battles.”

The White House is preparing for significant opposition from Democrats and will send Vice President Biden to meet with Senate Democrats on Tuesday. Later on Tuesday, House Democrats are scheduled to discuss the proposed deal.

Both the President and Republicans have ok’d the deal, so will Congressional Democrats fall in line as well?  Indications are that they don’t want to, but my guess is that they will agree to this deal in some form.  They don’t want to be the ones to hold up tax cuts for the middle class, and President Obama agreeing to this deal has put them in a bind in regards to that.

What do you think will happen with the Bush tax cuts?  Will this deal be passed?  Do you think that both sides compromising on issues that they previously said they wouldn’t mean that this deal is the best of bad options? Tell us your thoughts in the comments.

• Taxmageddon: Will We See A Huge Tax Increase Due To Expiring Tax Breaks At End Of 2012?
• The Bush Tax Cuts Are Expiring. Will The 2011 Tax Hikes Bring On A Double Dip Recession?
• Payroll Tax Cut Extended Through The End Of 2012
• Will There Be A 2012 Payroll Tax Holiday, Or Will An Extension Be Blocked And Taxes Rise In 2012?

The last few years have been tough ones for the real estate market, and especially for the banks who have watched as thousands of their home loans have gone into default, and homes into foreclosure. Because the lending market has become so tough, lending guidelines have already started changing, making it tougher for some people to obtain home loans.

Today I thought I would take a look at some of the things that are changing, along with some things you should avoid doing when you’re trying to get a loan.

Credit Reports Are Being Pulled Before Closing

One thing that has changed in recent months is that Fannie Mae has put out a program called the  Loan Quality Initiative. It was started with the goal of minimizing the number of bad loans that come through their doors.   Fannie Mae wants banks to take more ownership for the loans that they give, and is then giving them the responsibility if things go bad.   From themortgagereports.com

The Loan Quality Initiative is Fannie Mae’s response to the foreclosure surge since 2007. The program shifts the onus of mortgage guideline compliance away from the the government-backed group and to the individual banks responsible for making loans…

For the most part, mortgage applicants won’t be bothered with the changes. It’s just extra work for the bank. Things like Social Security Number validation checks and borrower occupancy standards.

There is, however, one major consumer hurdle.

The hurdle that many borrowers will face is the last minute credit check.  In the past, when applying for the loan you would have your credit checked at the beginning of the process, and if you were approved – and the loan was underwritten, you could almost be sure that your loan would be funded.  Now with the new initiative, after the loan has been underwritten and approved there will now be a last minute credit check before closing to make sure your credit situation hasn’t changed.

If your credit situation has changed and especially if it has worsened, it could mean that your loan won’t be funded, or that you may have to go through the underwriting process again.  When you go through underwriting again you may end up with a worse rate, or worse, you could lose your loan approval!

Things Not To Do Before Your Home Loan Is Funded

In order to ensure that you don’t lose your rate, or lose the funding on your home loan altogether, here are some things that you should avoid doing when you’re trying to buy a home – right up until the loan has been funded and you’ve closed on the home.

• Don’t open new credit cards or lines of credit: When the amount of debt you take on, or available credit goes up, that will be a negative to lenders. Stay away from these things until you’re actually moved into your new house – after the loan has been funded.
• Don’t make any new charges on your existing credit:  If you already have existing credit cards or lines of credit, don’t make any new charges, especially larger ones, on the card.  Your debt to income ratio will be determined, and the more debt you have, the worse off you are.
• Don’t finance any large purchases:  Put any plans to finance a new car, ATV or other large ticket item until after you buy the home.    Even leasing a car should be put on hold.  Again, your debt to income ratio will be looked at.
• Don’t try to hide things from your lender:  If you try to hide things from your lender it can end up causing you to lose your loan.   Don’t try to hide things like large deposits to your accounts (be ready to explain where the money came from), child support payments or alimony.  They will end up finding these things out anyway, so no reason not to mention it and jeapordize your loan.
• Keep your credit score high:  Do everything you can to make sure your credit score stays as high as possible.  Pay your bills, and don’t let things go into collections!

The point I’m trying to get across here is that when you’re trying to get a home loan, you need to make sure that your credit situation stays strong, all the way through the process until the loan is actually funded.

In the past people may have been able to get away with financing a car after getting your loan approved (many people buy new cars when moving!),  but nowadays things have changed. It’s better to hold off on any new purchases, new credit cards, or anything else that could affect your credit – until things are signed sealed and delivered.

Do you have any other things that people should avoid doing when buying a home (that could cost them money)?  Have you run into this situation where you thought your loan was approved and funded, only to have the deal change right before closing because of a change in your credit score?  Do you think these changes are a bellweather of a return towards more responsible lending? Tell us your thoughts in the comments.

Details on how to install hardwood flooring

• How And Why To Check Your Credit Score If You Plan On Buying A House
• Government Foreclosure Settlement Means Homeowners Could Get Reduced Principal, A Refinance Or Compensation
• Trying To Buy A New House When Your Current Home Is Underwater
• Will You Have To Pay Taxes On Forgiven Mortgage Debt Or Principal Reduction After A Foreclosure Or Short Sale?

At the end of the 2010 there will be a tax increase for all taxpayers, if something isn’t done.  Back in 2001 the Bush administration helped to get an across the board tax cut passed that effectively lowered the marginal tax rates for all people paying taxes.   (If you didn’t pay taxes, it doesn’t matter too much does it?).  Now those cuts are expiring and on January 1st, 2011 the new marginal tax rates will go into effect unless extended by legislation.

Thankfully for many of us the Obama administration has decided that they will push to renew the tax cuts for all taxpayers making less than $250,000 a year.

Obama wants tax breaks proposed by President George W. Bush to expire this year. His budget would eliminate tax breaks on those making more than $250,000 a year, a move almost certain to be opposed by Republicans and perhaps some Democrats as the economy crawls out of the recession.

“We extend middle-class tax cuts in this budget,” Obama said Monday at the White House, but “we will not continue costly tax cuts for oil companies, investment fund managers, and those making over $250,000 a year.”

So only those taxpayers making more than $250,000 a year (joint) will see an actual increase in their tax rates.  The rest of this (hopefully) will see an extension of the Bush tax cut.

For more of a look of what your tax rate would be if the cuts were to expire, check out this article:  Tax Rates If Bush Tax Cut Expires

Will Tax Hikes On Higher Income Taxpayers Bring On A Double Dip Recession?

There is no consensus as to what effect tax increases will have on the economy, but there are some pretty strong opinions on both sides.    Democrats are saying the tax increases are needed to help close the deficit and Republicans counter by saying that tax increases would cripple our economy in this tough environment.  I suspect the truth lies somewhere in between.

Today I read an editorial by prominent economist Arthur Laffer where he argues a tax increase for higher income individuals could have a crippling effect on our economy, and could bring on a double dip recession.

On or about Jan. 1, 2011, federal, state and local tax rates are scheduled to rise quite sharply. President George W. Bush’s tax cuts expire on that date, meaning that the highest federal personal income tax rate will go 39.6% from 35%, the highest federal dividend tax rate pops up to 39.6% from 15%, the capital gains tax rate to 20% from 15%, and the estate tax rate to 55% from zero. Lots and lots of other changes will also occur as a result of the sunset provision in the Bush tax cuts.

Tax rates have been and will be raised on income earned from off-shore investments. Payroll taxes are already scheduled to rise in 2013 and the Alternative Minimum Tax (AMT) will be digging deeper and deeper into middle-income taxpayers. And there’s always the celebrated tax increase on Cadillac health care plans. State and local tax rates are also going up in 2011 as they did in 2010. Tax rate increases next year are everywhere.

Now, if people know tax rates will be higher next year than they are this year, what will those people do this year? They will shift production and income out of next year into this year to the extent possible. As a result, income this year has already been inflated above where it otherwise should be and next year, 2011, income will be lower than it otherwise should be.

Also, the prospect of rising prices, higher interest rates and more regulations next year will further entice demand and supply to be shifted from 2011 into 2010. In my view, this shift of income and demand is a major reason that the economy in 2010 has appeared as strong as it has. When we pass the tax boundary of Jan. 1, 2011, my best guess is that the train goes off the tracks and we get our worst nightmare of a severe “double dip” recession.

Joel Slemrod, a professor of economics at the University of Michigan argues that increases on the wealthy are painful but necessary:

Obama’s approach of raising taxes only on the wealthy is probably the safest bet. While acknowledging that the economy will remain shaky next year, Slemrod said “not raising any taxes in the face of this fiscal imbalance also has economic effects.’’

“We start to play out a scenario where interest rates go up,’’ Slemrod said. “So it’s not as if increasing taxes has certain adverse impacts, but not raising taxes do not.’’

One thing that most agree on is that the coming year has some shaky prospects regardless of the tax cuts are extended or not. The economy has taken a pretty severe blow these past 2-3 years, and who knows what effect tax increases or the lack thereof will have.

What do you think? Will a tax increase on higher earners have a negative effect on the economy? Are tax increases necessary – or an extremely bad idea? Tell us your thoughts in the comments!

• Taxmageddon: Will We See A Huge Tax Increase Due To Expiring Tax Breaks At End Of 2012?
• Deal Reached Between President Obama And GOP On Extension Of Bush Tax Cuts
• Payroll Tax Cut Extended Through The End Of 2012
• Will There Be A 2012 Payroll Tax Holiday, Or Will An Extension Be Blocked And Taxes Rise In 2012?

As the effects of the $787 billion stimulus package of last year begin to wear off, the Obama administration is now looking at the option of passing yet another “limited” stimulus package to help dig the economy “out of a deep valley”.  Without it they fear that the slow gains our economy has made this year could be lost. The Financial Times explains:

The Obama administration made a strong plea to Congress on Monday to grit its teeth and pass a new set of spending measures – dubbed the “second stimulus” by some economists – in order to help dig the economy “out of a deep valley”.

The call for action, which was made by Lawrence Summers, Barack Obama’s senior economic adviser, who urged Congress to pass up to $200bn in spending measures, came at the same time as Mr Obama asked Capitol Hill to grant him powers to cut “unnecessary spending”.

The combined announcements were made amid rising concern that centrist Democrats, or those representing marginal districts, might vote against the spending measures, which include more loans for small businesses, an extension of unemployment insurance and aid to states to prevent hundreds of thousands more teachers from being laid off.

On the heels of a $787 billion stimulus package, $200 billion doesn’t sound nearly as large, but the fact is – it is money that we don’t currently have. A lot of people aren’t quite as sure another stimulus package is a good idea, they say it’s throwing good money after bad.

The M3 figures – which include broad range of bank accounts and are tracked by British and European monetarists for warning signals about the direction of the US economy a year or so in advance – began shrinking last summer. The pace has since quickened….

It’s frightening,” said Professor Tim Congdon from International Monetary Research. “The plunge in M3 has no precedent since the Great Depression. The dominant reason for this is that regulators across the world are pressing banks to raise capital asset ratios and to shrink their risk assets. This is why the US is not recovering properly,” he said.

The US authorities have an entirely different explanation for the failure of stimulus measures to gain full traction. They are opting instead for yet further doses of Keynesian spending, despite warnings from the IMF that the gross public debt of the US will reach 97pc of GDP next year and 110pc by 2015.

So there is quite a bit of debate as to whether the first stimulus actually did very much, and now we’ve got quite a bit of debate as to whether there should be another one.

What do you think? Should there be another stimulus? Will another $200 billion in unemployment extensions, small business loans and aid to states make a difference? Should we stop the spending now in light of ballooning deficits? Tell us your thoughts in the comments.

• Taxmageddon: Will We See A Huge Tax Increase Due To Expiring Tax Breaks At End Of 2012?
• What Effect Will The News Of Osama Bin Laden’s Death Have On The Markets?
• If You Itemize Your Taxes You’ll Have To Wait Til February To File
• Deal Reached Between President Obama And GOP On Extension Of Bush Tax Cuts

It was announced this past week that the Department of the Treasury will be issuing a new redesigned $100 note on February 10, 2011. It has been overhauled and has been updated to include a ton of new features to help thwart counterfeiters. Over a decade of research and development went into its new security features.

New Security Features Of The New $100 Bill

• 3-D Security Ribbon: There is a blue ribbon woven into the bill itself (not on top of the paper) that when you tilt the bill will show italics “100″s  written vertically.
• wiInkwell with Liberty Bell: There’s now an orange inkwell near Franklin’s left shoulder. When you tilt the bill, you will see the Liberty Bell superimposed on that inkwell.
• Portrait Watermark: On the far right side of the bill there is a portrait of Franklin done as a watermark.  This feature can also be found on other newly redesigned bills.
• Color shifting 100: The orange 100 in the lower right will shift colors as you move the bill.
• Large Gold 100 on the Back: Just like on the redesigned $5 bill, there is now a large gold 100 on the back of the new $100 bill. This change is made to help those who are visually impaired.
• Microprinting: “The United States of America” is printed in tiny letters on Franklin’s collar, “USA 100″ is around the blank space of the watermark, “One Hundred USA” along the golden quill, and finally 100s on the borders of the bill.

Want a more interactive look at the new $100 bill? Check out The Bureau of Engraving and Printing’s interactive tools here.

Here’s a quick video look at the new bill.

Personally I kind of like the newer more colorful design of the bills they’ve been coming out with lately. Reminds me a bit of all the colorful Euro bills we saw when we were in Europe in 2008.

So what do you think of the newly redesigned $100?  Love it or hate it?  Tell us your thoughts in the comments!

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Fresh off of a $787 billion stimulus package passed in February of 2009, congressional Democrats are now beginning to talk about passing a second, more modest stimulus package sometime within the next few months – aimed at easing the unemployment crisis.  From Reuters:

Congressional Democrats’ push for another U.S. stimulus package got a boost on Tuesday from an analysis that found their earlier effort had blunted the impact of the worst economic downturn in 80 years.

As Democrats weighed measures to bring down the nation’s double-digit unemployment rate before the November 2010 congressional elections, they touted a nonpartisan report that showed the $787 billion stimulus package passed in February had kept between 600,000 and 1.6 million people off the unemployment rolls.

That effort, panned as a boondoggle by Republicans, also boosted the nation’s GDP between 1.2 percent and 3.2 percent, the Congressional Budget Office found.

Democrats hope to pass a more modest effort in the next two months, targeted at bringing down the unemployment rate.

That rate, currently at 10.2 percent, could have been above 11 percent had Congress not passed the first stimulus package, House Majority Leader Steny Hoyer said.

“Is it where we want to be? It is not, but it is certainly a very, very definite, positive impact on the economy,” Hoyer told reporters. “The actions we have taken have worked.”

Elements of the next package are still up in the air

There is still a lot of debate about whether the first stimulus did what it aimed to do, or whether it just added to our national debt.   In any event, the Democrats are satisfied that it did what it set out to do, and they plan to pass another one to help ease the high national unemployment.

What Will Be Included In The Second Stimulus?

So what are some of the things that are going to be included in the new stimulus bill?  No bill has been finalized yet, and the proposals seem to vary quite a bit, but here are a few of the provisions that have been proposed.

• New spending on highways, rail, water and sewer systems, and other infrastructure
• Increased lending for small business, using funds left over from the $700 billion Troubled Assets Relief Program
• Money to help struggling state governments avoid laying off police, schoolteachers and other public employees
• Money to local governments for job creation programs like park cleanups and refurbishing public buildings
• Further extending unemployment benefits and health-insurance subsidies for the jobless
• A tax credit for businesses that hire new employees
• Extending a package of soon-to-expire business tax breaks, such as a credit for research and development.
• Unspecified measures to help domestic manufacturing
• Upgrading buildings for greater energy efficiency

So it doesn’t look like there are a lot of stimulus measures being discussed that would give individual tax breaks, stimulus checks or other benefits for individual taxpayers.  Most of the measures seem aimed at creating jobs, or saving existing jobs.

How Will They Pay For Another Stimulus?

One concern I have with any of these proposals for stimulus spending is – how are we going to pay for it?  More taxes? Yes, probably.

The package could also include a tax on financial transactions to help cover the cost, but several Democratic senators said it would have to be written in a way to avoid driving financial activity offshore.

“I don’t want to impose a tax that clearly is going to make American companies less competitive, (but) it’s on the table,” said Democratic Senator Max Baucus, chairman of the tax-writing Senate Finance Committee.

Lawmakers are considering other ways to pay for the measure without threatening the shaky economic recovery. Highway construction, for example, could start quickly but be paid for through measures that would take effect in several years when the economy is healthier, said Democratic Rep. Betty Sutton, co-chair of a House task force set up to consider proposals.

Is it just me, or do they really not know how they’re going to pay for these measures – except through imposing a new tax on businesses – that will in the end cause more jobs to be lost?  It really seems like their attempts to solve the problem are creating new problems in the process.

What do you think about these proposed stimulus measures?  Do you think they should pass, or would you rather see them not taken up?  Will they improve the unemployment situation or will they just add to the ballooning deficit?  Let us know your thoughts in the comments!

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The past couple of months we’ve talked quite a bit about the Cash For Clunkers program, how it worked, and who could expect to receive a voucher towards the purchase of a new car. People were split down the middle as to whether the voucher program was even a good idea, with some saying it was just another example of wasteful government spending – while others said it was a great way to stimulate spending and boost our economy.

We may now have another cash for clunkers type program to debate.  Earlier this year as a part of the American Recovery and Reinvestment Act a new program was announced that would allow people to receive rebates that would be good towards the purchase of a new ENERGY STAR® rated appliance to replace their less efficient models.

U.S. Department of Energy Secretary Steven Chu today announced the availability of nearly $300 million in funding from the American Recovery and Reinvestment Act for state-run rebate programs for consumer purchases of new ENERGY STAR® qualified home appliances.  The new program underscores the Obama Administration’s commitment to make American homes more energy efficient, while helping to support the nation’s economic recovery.

“Appliances consume a huge amount of our electricity, so there’s enormous potential to both save energy and save families money every month,” said Secretary Chu.  “These rebates will help families make the transition to more efficient appliances, making purchases that will directly stimulate the economy and create jobs.”

The new funding will be awarded to states and territories, through their energy offices, using a formula set forth in the Energy Policy Act of 2005.  Each state or territory is required to submit a plan that specifies which ENERGY STAR® appliance categories will be included in their rebate program, the rebate level for each product type, how the rebates will be processed, and their plan for recycling old appliances.  States and territories must first file an initial application expressing their intent to participate by August 15, 2009, followed by a full application by October 15, 2009. Approximately 10-25 percent of each award will be spent on administrative costs.

The goals of the program were to spur economic growth, create jobs, save energy and reduce greenhouse gas emissions.  How successful it will be in those goals is anyone’s guess.

Depending on which state you’re in, there is a different amount of money available to use towards rebates, so it is probably best to move on it as fast as you can once the program starts.  To find out how much money your state has to use towards appliance rebates, check this document.

How Do I Take Part In The Cash For Appliances Program?

The program will start some time late fall 2009, and program details will vary state by state.  The states will have the ability to say which appliances are eligible, along with how much of a rebate consumers would get. The energy department has set a deadline of October 15th for states to file formal applications for the program.  Details should become clearer for your state at that time.

Although the details will vary state to state, basically the program will authorize rebates to consumers of $50-$200 for purchases of more efficient household appliances. Unlike with the Cash For Clunkers program, people who take part in the program won’t have to trade in their old appliances. (thank goodness for that!)  It is also expected that the rebates will be stackable along with other rebates currently available.  So if your municipal district offers a $100 rebate towards a refrigerator, you would get that in addition to the federal rebate.

The Energy Dept. expects the bulk of the $300 million to be awarded by the end of November.

What Appliances Are Eligible For The Rebate?

To qualify for the rebate the new appliance must be ENERGY STAR® rated.  Qualified appliance categories eligible for rebates may include (depending upon your state):

• central air conditioners
• heat pumps (air source and geothermal)
• boilers
• furnaces (oil and gas)
• room air conditioners
• clothes washers
• dishwashers
• freezers
• refrigerators
• water heaters

Want to save even more?  Use these coupons to save!

• Lowes Coupons
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Let The Marketing Push For “Cash For Refrigerators” Begin!

Major appliance manufacturers have been feeling the pinch the past couple of years, with sales dropping and plants being shut down.

The leading appliance makers have felt the pinch. Whirlpool of Benton Harbor, Mich., which controls about 40% of the U.S. market, has seen its sales drop 20% through the first two quarters of this year. North American shipments for its Stockholm-based rival Electrolux, meanwhile, have dropped for a dozen consecutive quarters. Both companies have laid off hundreds of workers, and General Electric (GE) mulled shutting down an entire refrigerator plant earlier this year until deciding to keep it open with a reduced workforce.

Once the program begins I’m sure we can expect to see a huge marketing push, just as we saw with the Cash For Clunkers program.  Anything the appliance manufacturers can do to help spur sales will be helpful for them.  On the other hand, many are doubtful that the program will have much effect because the value proposition in receiving a smaller rebate for an appliance as opposed to a $4500 voucher for an old car just isn’t as motivational.  Many people will probably be able to get by with their old appliance for a while longer.  The manufacturers are hoping that’s not the case.

What do you think about the Cash For Appliances rebate program?  Does it make you more likely to buy a new fridge, dishwasher or water heater? Tell us what you think in the comments!

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