November 24, 2020

Economix Blog: What Your Tax Dollars Are Buying

Today – and I hope this does not come as a surprise to any of you – is tax day, when we are required to settle our bills with the federal government for the year 2012. Given how much we pay to Washington every year, it seems only fair that we ask for a receipt.

The White House and research organizations including Third Way have made it easy to do just that: Go to their online widgets and input a little tax and income information, and they will tell you just what you bought with your federal tax dollars. The widgets all operate on the same principle. They take the amount you paid in taxes and then divide that money up into separate piles that are proportionate to the spending categories of the federal budget.

Let’s say that you paid $20,000 in income taxes last year. According to the White House receipt, you would have spent about $7,000 on defense, including the military operations in Afghanistan and Iraq. The second-biggest category is health spending, on programs like Medicaid and Medicare. That accounted for about $6,400. After that comes “job and family security,” which includes unemployment insurance and programs for the working poor, which you spent about $5,000 on last year. Net interest on the debt is also a major category, accounting for about $2,300.

Then, there are many much smaller categories. Humanitarian aid, for instance, cost you only $228 out of your $20,000. You spent about $1,300 on programs for veterans and $190 on agriculture. Education and job training cost you about $940 and NASA about $170. Disaster response worked out to about $120.

There are a few things to note here. One is that “mandatory” spending – including government funding for Social Security, Medicaid, Medicare and interest on the debt – and military spending together significantly outweigh “discretionary” spending. That is upside down to many Americans’ perceptions of the budget. (It is also worth noting that the White House separates out tax revenue for and spending on Social Security and certain parts of Medicare.)

The second is that all those numbers add up to more than $20,000. If you go to the White House calculator and say you paid $5,000 in income taxes, it will break it down into an equivalent $5,000 in spending. But that doesn’t really make sense. Last year, Washington spent far more than it took in – about $1.1 trillion more. That means that for every tax dollar it collected, it spent about $1.43.

By the same logic, your $20,000 in income taxes translated into about $28,600 in spending. In the numbers above, I corrected for that discrepancy, particularly given that you will end up paying for that deficit in the form of higher taxes, lower spending and higher interest payments in the future.

Article source: http://economix.blogs.nytimes.com/2013/04/15/what-are-your-tax-dollars-buying/?partner=rss&emc=rss

DealBook: Earnings at Wells Fargo Jump 22%

A branch of Wells Fargo in New York.Shannon Stapleton/ReutersA branch of Wells Fargo in New York.

2:15 p.m. | Updated

At the height of the financial crisis, the mortgage business was a millstone for the banking industry. Today, it is a profit center.

Wells Fargo on Friday reported $4.9 billion of profit in the third quarter, a 22 percent jump largely led by a booming mortgage business.

The San Francisco-based bank continues to churn out record profits, with 11 straight quarters of net income gains. The results of 88 cents a share narrowly beat the estimates of analysts polled by Thomson Reuters, who forecast earnings of 87 cents a share.

The bank increased revenue as well, sidestepping a common sore spot that has plagued most all of the nation’s biggest banks. Wells Fargo recorded $21.2 billion in revenue, which surpassed the $19.6 billion figure from a year earlier but was slightly below expectations.

The bank’s lending division drove the growth, as consumers refinanced their mortgages amid record low interest rates. Wells Fargo, the nation’s largest mortgage lender, snared $188 billion in home mortgage applications, an 11 percent jump from the third quarter of 2011.

But the bank’s chief financial officer, Tim Sloan, underscored that “it’s more than just the mortgage business.”

The strong results, he noted, were spread across the bank. The wealth management unit improved. So did the sales and trading business.

“We just have the great benefit of this diversified model,” Mr. Sloan said in an interview.

But investors weren’t fully impressed. By mid-afternoon, the bank’s shares were down more than 3 percent, reflecting concerns about net interest margin, an important measure of the bank’s investment moves. The metric declined in part because the bank’s own investments suffered from the low-interest rate environment.

Wells Fargo, along with JPMorgan Chase, kicked off bank earnings season on Friday. The nation’s other big banks, including Goldman Sachs and Bank of America, will report their results next week.

The Wells Fargo story line – that a deep lending effort breeds success – is rooted in broad federal stimulus efforts that have propped up the mortgage industry. A Treasury Department initiative is spurring refinancing activity. And the Federal Reserve has introduced a long-term plan to buy large batches of mortgage-backed bonds, which should help keep rates low.

Wells Fargo, more than five years after the mortgage crisis, has seized the opportunity. The bank now creates roughly a third of all mortgages in the country. Total outstanding loans jumped slightly in the third quarter to $783 billion while the bank’s home mortgage originations soared 56 percent to $139 billion.

The demand for credit came largely from refinancing, which accounted for 72 percent of all home loan applications. The Treasury program produced 14 percent of the mortgage volume.

Like other big banks, Wells Fargo makes home loans before turning around to sell most of them to investors after attaching a government guarantee. Those gains totaled $2.61 billion in the third quarter, up 225 percent from $803 million in the third quarter of last year.

The refinancing boom is fueling profits. Wells Fargo’s profit in the community banking division, which includes Wells Fargo’s retail branches and mortgage business, climbed 18 percent to $2.7 billion.

Despite the gains, the mortgage crisis continues to haunt Wells Fargo. The bank this summer agreed to pay $175 million to settle Justice Department accusations that it discriminated against certain minority homeowners from 2004 to 2009. Wells Fargo, which denied the charges, was also sued this week by federal prosecutors in New York, who said the bank defrauded the government and lied about the quality of the mortgages it handled under a federal housing program.

Still, the legal troubles will barely nick the bank’s bottom line.

Like JPMorgan, Wells is experiencing growth beyond mortgages. Wholesale banking, which includes the sales and trading business along with the corporate lending division, increased its profit by 11 percent to $1.9 billion. While the unit operates in the shadow of the Wall Street investment banks, Wells Fargo has gradually extended its reach in that area.

“There are a lot of underlying positives that will continue to drive the earnings of this company,” said Ed Najarian, a senior bank analyst at ISI, a New York research firm.

Peter Eavis contributed reporting.

Article source: http://dealbook.nytimes.com/2012/10/12/wells-fargo-posts-earnings-of-4-9-billion-up-22/?partner=rss&emc=rss

Bucks: The Federal Debt: When Compound Interest Is Crushing

Carl Richards

The showdown over increasing the federal debt limit got me thinking about the power of compound interest. It’s always been one of the most powerful forces in the financial universe. And in the case of the debt ceiling, it appears that compound interest has the potential to become a crushing enemy.

Some people fear that the United States will lose its AAA credit-rating or even default temporarily, potentially increasing how much it costs the government to borrow money. According to the Congressional Budget Office:

…a 4-percentage-point across-the-board increase in interest rates would raise federal interest payments next year by about $100 billion; if those higher rates persisted, net interest costs in 2015 would be nearly double the roughly $460 billion that the C.B.O. currently projects for that year.

Think about that for a minute. If those worst-case-scenario interest rates came to pass and persisted, we’d be approaching a trillion dollars in interest payments per year. That’s what compound interest looks like when it’s working against you.

On a personal scale, you get a taste of it every month if you get careless with credit cards. Take a look at a bill. For every month you carry a balance, there’s a minimum payment required.

Many people only pay the minimum, not realizing that compound interest could make that $3,000 television cost way more than that and take over a decade to pay off. And that assumes you don’t add any additional charges to the balance.

New rules require that credit card companies include a section on each statement that shows just how long it will take to pay off the balance if you only make the minimum payment. Do yourself a favor and pay attention to the numbers. What you owe will only compound over time, and paying the minimum just digs the hole that much faster.

J. Reuben Clark, an undersecretary of state for President Coolidge, noted a long time ago that, interest on debt “never sleeps nor sickens nor dies… Once in debt, interest is your companion every minute of the day and night; you cannot shun it or slip away from it; you cannot dismiss it; it yields neither to entreaties, demands, or orders; and whenever you get in its way or cross its course or fail to meet its demands, it crushes you.”

It also gets in the way of achieving our goals. Last week, one reader commented that having a zero balance on your credit card was almost as good as saving money. There is some truth to that because every dollar we spend on interest is one less dollar that can be saved for the future.

Now it becomes a question of how to make compound interest work for you instead of working against you.

Next week we’ll talk about the power of compound interest and the end of a long period of savings. In the meantime, what have you done to protect yourself from getting crushed by interest?

Article source: http://feeds.nytimes.com/click.phdo?i=9941087e037ef24395ba1f1a29bb8298