ProVise Management Group, LLC, an SEC Registered Investment Advisor

PROVISE BULLETS ©

(May 29, 2009)

• Just in case you question whether tax policy has an effect on social behavior, we refer you to the state of Maryland.  A year ago, they decided to come up with a higher state income tax bracket for those with taxable incomes over $1,000,000.  After all, as President Obama has indicated, “the rich can afford it”.  Well the rich have voted, because this past year, according to the Comptroller of Maryland, the taxes from this top bracket fell by $100 million.  Yes, it could have something to do with the bad economy, but the reality is that the number of residents with $1 million of taxable income fell by one-third to 2,000 people.  Perhaps some of them cast their votes by leaving the state of Maryland. 

• Here’s a little twist to President Obama’s pledge to increase taxes on the wealthiest families, i.e., those who earn more than $250,000 as a married couple filing jointly, or $200,000 as a single taxpayer.  There is a narrow slice that will actually get a tax break when rates go up to 39.6% from 35% and to 36% from 33%.  Who are those lucky few?  They are those in the lower end of the 33% tax bracket who will fall into the expanded 28% tax bracket.  Therefore, single taxpayers with income between approximately $170,000 and $223,000 will actually pay less in taxes.  The same will occur for married taxpayers filing jointly with taxable income between $210,000 and $263,000.  The savings could amount to as much as $1,000 per year. 

• Well, there won’t be any more “bad hair days” at the airport.  The Transportation Safety Administration decided to “snuff out” those “airport puffers” that were being used at 37 airports around the country – you know the ones where you walk in, the doors close, there are puffs of air, and then it sniffs to see if you’ve been around any bomb making material or something of that sort.  The machines were purchased from GE and Smith Detection at a cost of $160,000 each.  The problem?  They keep breaking down; consequently a lot of money is being spent on maintenance.  Maybe the machines will be replaced by something that doesn’t break down so easily, i.e., a dog?

• Needless to say, businesses across the world are suffering during this recession.  So are governments, especially the U.S. government.  April is usually a good month for the U.S. Treasury as it collects a significant amount of taxes.  Last year, the surplus for the month of April was $159 billion.  This year, there was actually a deficit of about $21 billion.  If you review the first four months of 2009, the Treasury received about 25% less than it did in the first four months of 2008.  (Source:  Kipplinger Letter May 22, 2009)

• There is good and bad news on the Social Security front.  Because of the recession and relatively tame inflation, the Social Security wage base is expected to remain at $106,800 next year.  This means that workers paying into the system will not have to pay more in 2010 than the 2009 level.  Social Security (FICA) will remain at 6.2% capped at the $106,800 level.  The Medicare tax, however, is assessed on all earned income at a rate of 1.45%.  This is the first time that the Social Security base will remain the same since 1971.  What could possibly be the bad news?  If you are a Social Security recipient, it is highly likely there will be no increase in your Social Security check in the upcoming year.

• The FDIC put many bank CD investors at ease earlier this week when it announced that the extended limits on FDIC insurance would remain in effect through December 31, 2013.  You might recall that last Fall, amongst all the turmoil, the FDIC increased the amount of insurance from $100,000 to $250,000 per depositor for all account categories except IRAs and certain other retirement accounts (which were already at $250,000).  This extension was to end this year.  Now, CDs will be insured through 2013 at these higher limits.  The FDIC is an independent agency of the U.S. government and thus its insured institutions are backed by the full faith and credit of the U.S. government.  The list below is designed to help you determine the level of insurance you have: 

Single Accounts (owned by one person):  $250,000 per owner

 

Joint Accounts (two or more persons):  $250,000 per co-owner

 

IRAs and other certain Retirement Accounts:  $250,000 per owner

 

Revocable Trust Accounts:  $250,000 per owner per beneficiary up to five beneficiaries (more coverage is available with six or more beneficiaries subject to specific limitations and requirements)

 

Corporations, Partnerships, and Unincorporated Association Accounts:  $250,000 per corporation, partnership, or unincorporated association

 

Irrevocable Trust Accounts:  $250,000 for the non-contingent, ascertainable interest of each beneficiary

 

Employee Benefit Plan Accounts:  $250,000 for the non-contingent, ascertainable interest of each plan participant

 

Government Accounts:  $250,000 per official custodian

 

If you want to calculate the insurance coverage you have, you can go to www.fdic.gov and use the tool provided on the website.  (Source:  FDIC)

 

• What do you do if you are graduating from college this year and are unsuccessful entering the workforce?  The answer is simple.  Don’t go to work.  Instead, 27% of college graduates have indicated that they intend to go to graduate school.  We guess the theory is, if you can’t find a job, you might as well pursue a higher degree in the hopes that, when jobs become more plentiful, you can start with a higher salary, helping to make up for the couple of years you didn’t work.  (Source:  National Association of Colleges and Employers)

• We’re not sure if this should be placed into the “good news” or the “bad news” column, since economists don’t often have a very good track record for predictions.  Earlier this quarter, the Federal Reserve said that the economy would begin to reverse itself later this year.  Now, according to the National Association for Business Economics, around 90% of the economists surveyed agree with the Federal Reserve.  Seventy-four percent said that the recession will end in the third quarter, and another 19% said it would turn around during the last quarter of the year.  What about the group that is left over?  They think it will be during the first quarter of 2010.  Thus, essentially, 100% of economists believe that by this time next year, the economy will be on its way to a recovery, albeit a “bumpy” one.  This recession, which began in December of 2007 is now the longest since World War II.  Remembering that jobless claims and unemployment are lagging indicators, it is likely that even when the economy turns around, much of the headline news could still be on the bleak side.  In any event, growth in any amount is better than where we have been.  All of the contentions being put forward by economists are bolstered by the Conference Board announcement that the Consumer Confidence Index™ increased dramatically in April, up from a historic low of 25 in February.  If consumers finally head back to the stores, it will likely send a signal that the bottom is near, or is actually behind us. 

• The FDIC keeps track of troubled banks and the number on the “problem list” is at a 15 year high, with 305 names versus 90 names this time last year.  This year, 36 banks have already failed.  Although the banking industry did turn a profit, there is still a great deal of stress as their write-offs continue to increase.

• We won’t know the final outcome for General Motors until Monday, but it is entirely possible that, should it go through bankruptcy it will be delisted from the New York Stock Exchange and removed from the Dow Jones Industrial Average.  Should this happen, it would be the first time GM was not listed on the Dow since 1925.  Who would replace it in the Dow (and of course on the S&P 500)?  That will be in the hands of the managing editor of The Wall Street Journal for the Dow and in the hands of Standard & Poor’s for the S&P 500.  Look for the Dow to not replace GM with another manufacturer, but some other company that might be more representative of today’s economy.

As always, we encourage you to give us a call if you would like to discuss anything further.  We will visit again soon.

RAY, KIM, ERIC, BRUCE, and LOU

©5/29/09 ProVise Management Group, LLC

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