bank accounts

Economix Blog: When $250,000 Isn’t Actually $250,000

December 9, 2012 by NewsMaker Leave a Comment

Binyamin Appelbaum and I have an article in Friday’s paper about President Obama’s proposal to raise marginal income tax rates for married couples earning “more than $250,000.”

As we note, there are lot of couples earning more than $250,000 whose tax liability would not be affected.

There are two main reasons: inflation, and the very narrow way income is defined in this proposal.

CATHERINE RAMPELL

Dollars to doughnuts.

First, the thresholds that Mr. Obama originally staked out – $250,000 for married couples filing jointly and $200,000 for single taxpayers – referred to policies he wanted to take effect in 2009, and he has been indexing most of them to inflation so that they’re higher today. The adjusted thresholds for 2013 are $266,100 and $212,850, according to the independent Tax Policy Center. Mr. Obama uses $250,000 as shorthand for the higher-income taxpayers the increases are aimed at — perhaps for consistency’s sake, and perhaps because $250,000 is a nice round number. (The White House declined to comment on why the president still uses the $250,000 number.)

Second, the thresholds refer to a specific accounting term called adjusted gross income, or A.G.I., that excludes a lot of categories of income.

Now, if you ask people how much they make, they probably don’t respond with their exact A.G.I. Instead they probably think about their salary, wages, pension income, and maybe a bonus and investment income if those categories brought in substantial money.

That rough mental accounting for how much you make would include some money not counted in A.G.I. (and exclude some money that is part of A.G.I.). In other words, a lot of people might have more than $266,100 flowing into their bank accounts during the year but still have an A.G.I. below $266,100.

A.G.I. includes wages, salaries, investment income and bonuses – the categories mentioned earlier that might be part of a quick mental accounting of how much you make. But it can also be reduced by subtracting items like certain business expenses; health savings account deductions; some moving expenses; contributions to some retirement accounts like an I.R.A.; alimony paid; most Social Security benefits; some income earned overseas; tax-exempt interest on municipal bonds; and college tuition, fees and student loan interest, subject to limits.

On the other hand, there are some categories in your A.G.I. that you might not think to include if someone asks how much you make. These include rents; royalties; income from operating a business; alimony received; share of income from partnerships and S-corporations; income tax refunds; and the ever-popular gambling winnings.

For example, a married couple might make $300,000 annually in salaries and investment income, but after subtracting health savings account deductions, alimony paid and I.R.A. contributions, they might have an adjusted gross income of about $270,000. That means they would probably not be affected by the tax increases aimed at “high income” people even though they are indeed near the top of the income distribution.

To make things even more confusing, note that some of the tax increases intended for “high income” people (using Mr. Obama’s stated $250,000 and $200,000 thresholds from 2009) will actually apply to even fewer people than this analysis so far suggests.

Those whose income exceeds those thresholds would be affected by new taxes created by the Affordable Care Act, including additional taxes on both their earned income and their investment income. (And here the thresholds are actually $250,000 and $200,000, with no indexing. All the other taxes aimed at “high income” individuals are indexed; for some reason the Affordable Care Act taxes were not.)

But many at those income levels will not be affected by the expiration of the Bush marginal income tax cuts for upper-income people. That’s because the Bush tax cuts refer to an even narrower measure of income called taxable income, which is basically a subset of adjusted gross income that many high earners can reduce substantially with the help of a skillful accountant.

Taxable income is calculated by subtracting personal exemptions and deductions (either itemized or standard) from adjusted gross income. Itemized deductions include things like home-mortgage interest payments, health expenses, state and local taxes, and charitable contributions. While subject to limits, those deductions can bey large. Generally the reason to go through the hassle of itemizing deductions, after all, is to reduce your taxable income by much more than the standard deduction would.

Mr. Obama has defined all the thresholds for whose taxes he wants to raise in terms of A.G.I. But again, tax rates are based on taxable income. Mr. Obama’s method of translating his A.G.I. cutoffs into taxable income cutoffs is to take the A.G.I. threshold and subtract the minimum amount a family is entitled to exclude: one standard deduction and two personal exemptions for married couples, totalling about $20,000.

So when Mr. Obama promises he won’t raise tax rates for married couples with a 2013 A.G.I. of $266,100, the policy translates to taxable income thresholds of about $246,000.

Those are conservative calculations for how much taxable income people with these levels of A.G.I. will report. Usually people at those A.G.I. levels choose to itemize their deductions, which reduces their taxable income.

If you have a lot of deductions and personal exemptions, you might end up reducing your taxable income by so much that you no longer fall into a tax bracket whose marginal tax rate Mr. Obama proposes to raise. (You might still be subject to the alternative minimum tax – a parallel tax system that basically says you have to pay at least a given share of your income, regardless of how many deductions you take – but you will not be hit by the higher marginal tax rates on earned income that Mr. Obama is proposing.)

For example, a married couple earning $300,000 in A.G.I. might have itemized deductions of about $50,000 and a child, which means three personal exemptions. This comes to a total of more than $60,000 in deductions and exemptions, meaning this couple would have taxable income below the president’s threshold for higher tax rates. In fact, about 70 percent of all couples in the $250,000 to $300,000 A.G.I. range in 2013 would be unaffected by Mr. Obama’s proposal to raise taxes on those earning over $250,000, according to Citizens for Tax Justice, a liberal advocacy group.

Remember that all these higher tax rates refer to marginal rates – the escalating rates on each successive tier of income – not average rates.

That means that even if you do earn enough in taxable income to be affected by the higher tax rates, not all of your income would be taxed at higher rates. Only the income above the thresholds would be subject to a higher tax rate under Mr. Obama’s plan. The first couple of hundred thousand dollars would be taxed at the same rates that now apply.

Article source: http://economix.blogs.nytimes.com/2012/12/07/when-250000-isnt-actually-250000-2/?partner=rss&emc=rss

Filed Under: Economy News Tagged With: bank accounts, income tax rates, investment income

Bucks Blog: Giving With an Eye on the Impact

September 28, 2012 by NewsMaker Leave a Comment

Paul Sullivan’s Wealth Matters column this week discusses philanthropists who not only want their donations to do good, they are looking for a way to measure the impact of their giving.

It’s called impact investing, and has become increasingly popular over the last decade or so.

While Paul is writing mainly about people have millions to give to charitable causes, people with far less in their bank accounts have also done impact investing. He mentions GiveWell, a nonprofit group that says most of its money comes from smaller donors.

Have you ever donated money with the idea of making a measurable impact? Tell us about your experience.

Article source: http://bucks.blogs.nytimes.com/2012/09/28/giving-with-an-eye-on-the-impact/?partner=rss&emc=rss

Filed Under: Your Money Tagged With: bank accounts, measurable impact, nonprofit group

Bucks Blog: Higher One Draws Student Criticism Over Debit Cards

November 15, 2011 by NewsMaker Leave a Comment

Students on some college campuses are simmering with discontent over Higher One Holdings Inc., a company that provides debit cards and bank accounts to students receiving financial aid.

Some people at Western Washington University in Bellingham, Wash., have created a “Students Against Higher One” Facebook page and held a rally Wednesday to voice concerns over fees associated with using Higher One’s debit cards, which are linked to online bank accounts. About 60 students participated, said school spokesman Paul Cocke.

The protest follows an incident in North Carolina last month, in which a student complained online about his school’s relationship with Higher One in remarks the school perceived as threatening, leading to his temporary suspension.

The New Haven, Conn., company partners with roughly 700 campuses across the country to handle payments to students. Colleges contract with Higher One to handle payments, such as grants and student aid “refunds,” which are funds left over after tuition is paid and are typically used for textbooks and other education-related costs. Students can receive a debit card and activate the account linked to it, to quickly access their funds. In some cases, the cards also serve as the student’s college I.D. card.

Administrators say using Higher One’s service saves them money and makes it more convenient for students to access their own money. Some students, for instance, aren’t able to open traditional bank accounts because they may have a history of bouncing checks, said Mr. Cocke. But they can open an account with Higher One, regardless of their past banking record.

But some students say the card comes with unreasonable fees. For instance, if students use a non-Higher One A.T.M., they are charged $2.50, in addition to any fee the A.T.M. owner charges. (Higher One offers A.T.M.’s on the campuses it serves, but they are otherwise limited in some areas.) Students are also charged 50 cents for each debit purchase they make using a PIN instead of a signature, and they may pay up to $19 a month if their account remains inactive for nine months.

Shoba Lemoine, a spokeswoman for Higher One, said the basic checking account offered with the card, the OneAccount, could be used free; it carries no monthly service fee and offers free online bill payments.

The company is upfront about the fees it does charge, she added, noting that a list is available on the company’s Web site along with detailed tips on how to avoid the fees. For instance, a video describes how students can avoid the 50-cent fee on purchases by choosing “credit” and signing for their purchases, rather than choosing “debit” and entering their PIN.

Students’ use of the Higher One account is optional, she said; they can choose to activate the account, which allows them to get their refunds quickly. Or, they can choose to have their funds directly deposited into another bank account. They can also choose to receive a paper check, but that option will take longer.

Over all, she said, students appear to like Higher One’s service: “What’s happening there is a bit atypical,” she said of unrest at Western Washington University.

Most students seem satisfied with the debit cards, Mr. Cocke said, but the university is taking complaints seriously; it held a forum last month to address student concerns, will host a second event on Nov. 17, and will work with Higher One to see if any changes can be made. “Our students have a long history of being willing to voice concerns,” he said.

In the North Carolina incident, a student, Marc Bechtol, complained about Higher One in a September post on the Facebook page maintained by his school, Catawba Valley Community College, in Hickory, N.C. Mr. Bechtol said he made the post because shortly after his school mailed him his Higher One card, which doubles as a student identification card even if it isn’t activated, he received a marketing solicitation from a credit card company. (Higher One says it does not share information with third parties and that the offer was unrelated to Mr. Bechtol’s receipt of his Higher One card.)

According to the Foundation for Individual Rights in Education, a Philadelphia-based nonprofit that advocates for free speech on campus, the post said, “Did anyone else get a bunch of credit card spam in their CVCC inbox today? So, did CVCC sell our names to banks, or did Higher One? I think we should register CVCC’s address with every porn site known to man. Anyone know any good viruses to send them?” He then added, “O.K., maybe that would be a slight overreaction,” according to FIRE.

Mr. Bechtol said in a telephone interview that he objected to the school’s use of an outside financial firm and to the firm’s heavy marketing to students, many of whom were young and unsophisticated about banking. “It was obviously in jest,” he said of his post.

In a letter to Mr. Bechtol posted on FIRE’s Web site, the school told him the post was “disturbing and indicates possible malicious action against the college,” and that he would be suspended for two semesters. A spokeswoman for the college, Mary Reynolds, said in a phone interview that it was Mr. Bechtol’s apparent threat that led it to act: “We were responding to a potential threat to our operations,” she said.

Mr.Bechtol appealed, however, and the school dropped the suspension.

Have you used Higher One’s debit cards? Do you think the fees are reasonable?

Article source: http://feeds.nytimes.com/click.phdo?i=f73520cdaec0f8c6a3b934cc32e7ac7a

Filed Under: Your Money Tagged With: bank accounts, bouncing checks, d card

Bucks Blog: Fees Help Drive Working Poor From Banks

October 28, 2011 by NewsMaker Leave a Comment

“Hidden or unexpected” fees are the No. 1 reason given by the working poor for closing bank accounts, a recent study found.

The study by the Safe Banking Opportunities Project, a project of the Pew Health Group, surveyed 2,000 predominantly low-income, Hispanic households in the Los Angeles area in a two-phase study. Study participants were screened and recruited through a door-to-door, interviewer-administered survey. Read more »

Article source: http://feeds.nytimes.com/click.phdo?i=f6b2abaedbc230db7e9aa937e8a68037

Filed Under: Your Money Tagged With: bank accounts, interviewer, study participants

Argentina’s Default Offers a Cautionary Tale for Greece

June 23, 2011 by NewsMaker Leave a Comment

“Thieves!” some yelled, banging hammers.

It was a low moment for Argentina as it abandoned an experiment to peg the peso to the dollar, froze bank accounts and defaulted on $100 billion in mostly foreign debt.

Today, the sheet metal is gone. But the debilitating effects of Argentina’s 2001 default and currency devaluation still linger. And now, as Greece edges toward a possible default, the Argentine lessons could be instructive.

For one thing, a decade later, Argentina has still not been able to re-enter the global credit market.

“A default is not free,” said Jaime Abut, a business consultant in Rosario, a city north of Buenos Aires. “You have to pay the consequences, and for a long time. Argentina is no longer considered a serious country.”

If anything, economists say, Greece’s prospects could prove worse. Argentina was, and is, a big exporter of agricultural products, and it runs a foreign trade surplus. The bulk of the Greek economy is services, particularly tourism, and Greece perennially runs a trade deficit.

Moreover, at the time of its default Argentina had a fiscal deficit of 3.2 percent of gross domestic product. Greece’s deficit was 10.5 percent of G.D.P. last year, according to the European Commission — well above the European Union’s limit of 3 percent.

And as a percentage of G.D.P., Greece’s debt of 150 percent is far worse than the 54 percent Argentina had when it defaulted.

But perhaps the biggest bind for Greece is that it shares a common currency with the other European nations that use the euro. And so, unless it takes the imponderable and unprecedented step of breaking from the euro zone, Greece does not have access to one big tool — devaluing its sovereign currency — that has helped Argentina weather its economic storm.

“The big problem for Greece is that they have a strong currency, much stronger in relation to their productivity,” said Eric Ritondale, a senior economist at Econviews, an economic consulting firm here.

During the 1990s, seeking to tame hyperinflation, Argentina had tied the value of its peso to the American dollar — a “convertibility” strategy that proved unsustainable because of rising global interest rates. The country privatized many industries, which led to high unemployment but also made Argentina’s economy more efficient. (Greece, whose public sector accounted for about 40 percent of its economy before the debt crisis began last year, is now under heavy privatization pressure.)

By 1999, however, it was clear to most economists that Argentina was marching inexorably toward a default and devaluation. The number of people under the poverty line was growing — it peaked at more than 50 percent of the population in 2002 — and unemployment was soaring. The government coalition of President Fernando de la Rúa began to fall apart.

As with Greece now, social tensions rose. There were eight general strikes in Argentina in 2001, with looting and thousands of roadblocks. Huge lines formed outside many European embassies as waves of Argentines fled their country.

“People sold everything and moved to Spain, and took jobs doing anything, because they felt this country had no hope,” recalled Daniel Kerner, an analyst with the Eurasia Group, a political risk consultancy.

Mr. de la Rúa resigned on Dec. 21, 2001, fleeing the government house by helicopter as a riot raged below. Over the next 10 days, four presidents assumed power and then quickly resigned before a fifth, Eduardo Duhalde, declared the currency devaluation. A short time later, Congress formally approved the debt default that was already a de facto reality.

In 2003 Nestor Kirchner was elected to replace the interim president, Mr. Duhalde. Mr. Kirchner embarked on a new economic model — one that his wife, Argentina’s current president, Cristina Fernández de Kirchner, continues to follow today. Its pillars are sustaining a weak currency to foster exports and discourage imports, and maintaining fiscal and trade surpluses that can be tapped for financing government and paying down debt.

Aiding this strategy has been the rising global prices of agricultural commodities. For Argentina, a major soybean producer, the commodity wave has been a godsend. Soybean prices have risen from $200 a ton in 2003 to about $500 a ton today.

Greece, with few agricultural exports, cannot expect a similar windfall. But economists say it can benefit from Argentina’s example on debt restructuring — mainly by seeking to avoid repeating it.

Charles Newbery reported from Buenos Aires and Alexei Barrionuevo from São Paulo, Brazil, and New York.

Article source: http://www.nytimes.com/2011/06/24/business/global/24peso.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: bank accounts, global credit, greek economy