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Fix the Tax System By Taxing Consumption

This article was written by in Taxes. 16 comments.

An elegant answer to the over-complicated tax system is to shift the basis of the system from income to spending. There have been a variety of proposals to make this happen. It’s the core of the so-called Fair Tax and Herman Cain incorporated its concept into his 9-9-9 tax plan. Other proposals have called for a value-added tax similar to the system in the United Kingdom.

FerrariWorking to earn a living contributes to society, as does investing in businesses. Taxes on income, whether wages or dividends, could discourage this type of economically-beneficial activity. Consumer spending also benefits the economy, though, and if this tax system discourages spending, it might have a negative effect on the economy initially.

Also, lower-income households and those who live paycheck-to-paycheck would bear a higher burden. When almost all of a family’s income is spent, this family would be taxed on a high percentage of their income. On the other hand, a corporate executive earning more than a million dollars does not need to spend all of his money. His tax burden is more affordable. Under today’s tax environment, someone with the means might put money into real estate, invest in businesses, and shelter assets in offshore accounts. Under the new system, a wealthy individual might stay away from buying houses if those transactions are taxed, while bringing more offshore assets back to the United States.

Rather than adding a national sales tax to determine consumption, one solution is to report all income, as is currently done, as well as all contributions to savings, just like what is done for IRA and 401(k) accounts. The difference between income and savings would be the basis on which the government levies the consumption tax. There could be a high standard deduction applied to the difference, so that lower-income families who are struggling to save do not need to pay an unaffordable tax bill, and so that the system remains progressive.

Reforming the tax system away from income tax is a tall order. Thanks to deductions for tax-advantaged savings, the income tax system has already begun to shift towards a focus on spending, but if you believe that the system could be vastly improved by focusing solely on consumption, the system has a long way to go before workers and savers aren’t punished by a tax collection system.

Would you prefer a tax system based solely on consumption?

Photo: exfordy
New York Times, Slate

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How Student Loans Affect Your Credit Scores

This article was written by in Credit. 11 comments.

This is an article by Gerri Detweiler. For the past twenty years, Gerri has been an advocate helping consumers find reliable answers to their credit questions.

Just as student loans can be “good debt” or “bad debt” depending on how they are used, they can be good or bad for your credit scores, depending on how you handle them. Obviously, they can help your credit scores when you’re able to pay them on time, and hurt them when you can’t. But there are important nuances that can make the difference between earning a great score and a mediocre one.

When student loans = good credit

Student loan debtA student loan can provide a student’s first credit reference. That’s especially true now that the Credit CARD Act makes it more difficult to load up on credit cards before you turn 21. Student loans differ from credit cards in an important way, though; they are installment loans, not revolving loans like credit cards. That’s a plus when it comes to building a well-rounded credit file. “Our research has shown that (all things being equal) consumers with a wider range of credit experiences tend to be better credit risks than those with only limited credit experience,” says Anthony Sprauve, public relations director for FICO.

What about the fact that many students graduate with not one, but many, student loans? Unlike maxing out a bunch of credit cards, the fact that your report lists multiple student loans is not necessarily harmful. That’s true even if the balances are high. “While having many revolving type accounts with high balances can hurt your score — even when paid on time — the FICO scoring formula doesn’t place nearly as much importance on the debt amount and the number of loans when considering installment loans,” says Sprauve.

But, of course, it can be hard to keep track of due dates on multiple loans, so the greater the number of loans, the greater your risk that you’ll miss a payment. If you consolidate some or all of your loans it will be easier to keep track of your due dates, but don’t expect a boost to your credit scores. “Typically (consolidation) wouldn’t have a major impact on the score because it’s installment credit and the amount you owe is still the same,” says credit scoring expert Tom Quinn.

When student loans = bad credit

Missing payments on your student loans hurts your credit scores. If you pay a few days late, say on the 5th of the month when the loan is due on the 1st, it’s unlikely the loan will be reported as late. But once a payment is thirty days late, it will likely be reported to the credit reporting agencies, and your scores will suffer as a result.

If you can’t make your payments, check out flexible repayment options, such as the Income Based Repayment Program (now dubbed “Pay As You Earn” by President Obama), graduated repayment, or income-contingent repayment. Or find out if you are eligible to put your loans in deferment or forbearance. Repaying your loans through one of these programs is not likely to hurt your scores, says Quinn.

But be careful. Some students who apply for deferment or forbearance think it’s a done deal and stop paying, only to discover it was not finalized and they are considered delinquent on their loans. Make sure you have something in writing from your lender before you reduce or stop making payments.

Quinn also warns about a common misconception that loans in deferment or forbearance are ignored when credit scores are calculated. “It’s still considered because you are obligated to pay it,” he says, adding that, “Delinquencies are reported even if the loan is deferred.”

What if damage has already been done? Late payments can stay on your credit reports for up to seven years and simply paying the past due amount won’t remove those late payments. But if your federal loan goes into default, you may be able to improve your credit by rehabilitating your student loan. You’ll have to make nine monthly payments on time over a nine to ten month period, depending on your type of loan. Once you do, you can apply for rehabilitation and, if successful, the notation that your loan was in default will be removed from your credit reports.

More student loan and credit scores tips

  • Feel free to prepay. Pay off your student loans early and you’ll save money on interest. Doing so shouldn’t hurt your credit scores, though, Sprauve warns that without other installment loans you could see your scores drop slightly.
  • Keep meticulous records. From the time you take out your first student loan, you should start a file and keep copies of loan documents, statements, etc. This documentation may prove to be invaluable if you experience payment problems.
  • Pay on time. This can’t be emphasized enough. If you move, notify your lenders of your new address. A statement that goes missing does not let you off the hook for a payment. Never heard from a lender about a loan you took out? Track down the lender and find out when payments are due.

Photo: a_mina
Department of Education

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20+ Christmas Gift Ideas Under $100

This article was written by in Consumer. 19 comments.

While I’ve already offered my suggestions for this year’s best holiday toys, not everyone on your Christmas or gift-giving list is a child. You may have a special adult someone on your list who would appreciate something more useful. Although it’s early in the holiday shopping season, at least for me, some of the best deals are already starting to materialize, well before Black Friday.

If you’re looking for a great Christmas gift for one of your favorite people, consider one of these Christmas gift ideas under $100. Of course, these apply as well to Hanukkah or any other gift-giving activities you might partake in before the end of the year.

Have any good suggestions? Please leave them in the comments and I’ll add the ones I like to my list.

Gift ideas under $100: Around the house

1. Dremel Multi-Max Oscillating Tool Kit (Home Depot, $99.00). “The Dremel Multi-Max 2.3 Amp MM20 Oscillating Tool Kit incorporates a powerful, efficient motor that provides cool, smooth operation under load. This versatile tool features a compact design that makes it easy to handle in tight spaces..” For anyone who likes or wants to do work around the house.

2. Black & Decker B&D Convection Toaster Oven (Sears, $95.63). This convection toaster oven also comes with a rotisserie capability. I need to replace my toaster oven, and this is a capable option.

3. Task Force 204-Piece Standard/Metric Mechanics Tool Set with Case (Lowe’s, $89.98). With 204 pieces, this tool set is complete for any would-be handyman or handywoman, yet it is still portable.

4. Pure Beech Jersey Knit Sheet Set, 100% Modal (Bed, Bath and Beyond, $29.00 – $79.00). “The softness of these extremely soft and light silk-like sheets is reminiscent of your favorite T-shirt, offering incomparable comfort.” I’ve been a fan of jersey cotton sheets for several years. I find jersey cotton to be much more comfortable than sateen or other bed sheets.

5. Framed art (Amazon, up to $99.99). Adding art to the walls adds color and excitement to any room in the house. If you don’t know an artist willing to create work for you, shop for framed art.

6. Merkur Shaving Gift Set (Amazon, $106.50). “The set includes a chrome stand that holds a Merkur Classic Safety Razor and a fabulous badger Shaving Brush with a Chrome Handle. Also included in the set is an elegant Chrome Bowl that holds a Colonel Conk Shaving Soap.” Since April, I’ve been shaving the old-fashioned way, with a badger-hair brush, shaving soap, and a safety razor. My face has never felt healthier and I get a smooth shave. Add some inexpensive Feather blades and have smooth skin all day.

7. Helen Of Troy Hotspa Professional Ultimate Foot Bath (Amazon, $95.93). “Ozone (active oxygen) helps to control, reduce and eliminate bacteria Motorized Pedicenter rotates with the press of a foot.” These devices are quite relaxing, whether you’ve been on your feet all day teaching, hiking, or giving presentations to the board of directors.

8. Sterling Silver 1/8 Carat t.w. Diamond Heart Bracelet (Kay, $99.99). “Heart-shaped sterling silver links accented with round diamonds create playful style in this bracelet for her. One-eighth carat total diamond weight. 7″ in length. With lobster clasp.” For any women who like jewelery.

Gift ideas under $100: Electronics

9. Sony BDP-S380 Blu-ray Disc Player (Amazon, $98.00). “Enjoy Blu-ray Disc movies in brilliant high-definition resolution or upscale the quality of your DVDs to near HD. Instantly stream a wide variety of movies, TV shows, live sports, videos, and music from Netflix, YouTube, Pandora, Hulu Plus and many more.” If you have a high-definition television, you must adopt Blu-Ray and replace your DVD player. There is simple no comparison between (even up-converted) standard definition and high bit-rate Blu-Ray video and audio.

10. Sony Cyber-Shot DSC-W530 14.1 MP Digital Still Camera (Amazon, $99.99). “Shoot more life with the Sony DSC-W530. Capture landscapes with one touch using Sweep Panorama, get that perfect portrait with Smile Shutter, snap wider scenes with the 26mm wide angle lens, get high quality photos with 14.1 megapixels, and automatically get clear shots with SteadyShot image stabilization and iAuto; all in a sleek little design.” This camera features a Carl Zeiss lens, offering a great quality picture sure to beat the camera built into your phone.

11. Roku 2 (Roku, $59.99 to $99.99). “With Roku, get instant access to tons of entertainment — with more choices added all the time.” This device allows you to watch any media content on your (most likely high-definition) television, accessing the internet wirelessly from anywhere in your house. It seamlessly links to your Netflix and Hulu content as well as many other services.

12. Garmin nüvi 1300 4.3-Inch Widescreen Portable GPS Navigator (Amazon, $98.94). “The thin nüvi 1300 has a widescreen display, yet it’s slim and light enough to take along on all your travels. This affordable GPS comes with regional mapping, announces streets by name, offers pedestrian navigation options and calculates a more fuel-efficient route with ecoRoute.” I’m looking for a new GPS navigator for my car, as I’ve been using my phone since my last device was stolen.

13. Kindle Touch Wi-Fi, 6″ E Ink Display (Amazon, $99.00). I have been using my iPad for reading books purchased via Kindle, but if you have no need for an iPad and just want the ability to access your library from anywhere, choose the Kindle. Now members of Amazon Prime can read books without paying for each.

14. Coby DVD938 5.1-Channel DVD Home Theater System (Amazon, $90.01). “Dynamic sound meets sleek design in Coby’s DVD938 home theater system, which includes a progressive scan DVD player plus a 5.1-channel home theater speaker system (subwoofer and five satellite speakers).” This is a bargain if you don’t need HDMI and you’re looking for compatibility with USB players, SD cards, or karaoke.

Gift ideas under $100: Fun stuff

15. Tauntaun Sleeping Bag (ThinkGeek, $99.99). “In the sub-zero wasteland of the planet Hoth, only the strong survive… and of course those lucky Jedi protected by the thick skin of a Tauntaun.” Any Star Wars fan, adult or child, would appreciate the comfort of avoiding the cold by sleeping inside a tauntaun. ThinkGeek offers lots of gifts for science fiction and fantasy geeks and tech nerds.

16. Bicycle Premium Mega Masters Poker Chip Set (Amazon, $99.95). “The Bicycle Mega Masters Poker Set is a premium poker set for the poker enthusiast. It includes a handmade, high-lacquered wooden case with 500 11.5-gram Bicycle clay filled poker chips in a four-color assortment of red, blue, black, and green… [and] two decks of Premium Bicycle brand playing cards.” Invite your friends over and lose more money to them than the cost of buying this set.

17. Halex Premium Vivace 113mm Bocce Set (BocceBallSets.com, $94.98). With this set, you can entertain your friends with both backyard games: bocce and croquet. Best to buy these sets during the off-season for the best prices. This set normally costs $140.

18. Bob Ross Deluxe Oil Painting Set In Wood Box (Amazon, $85.00). “Bob Ross Art Sets enable the beginner artist to create a beautiful oil painting through Bob’s easy and informative instruction methods and top-quality materials. This Deluxe Art Set contains everything needed to get started in the Bob Ross ‘Wet on Wet’ technique.” Thankfully, this set comes with an instructional DVD. You recipient will be on his or her way to creating masterpieces.

Gift ideas under $100: Financial stuff

This is a personal finance blog, after all.

19. $100 Treasury Bond (TreasuryDirect, $100). TreasuryDirect offers gift functionality, so as long as you have an account and have the Social Security Number of your recipient, you can give the gift of a savings bond, a low risk investment that will earn interest over time.

20. Stock (ShareBuilder, $100). If you would like to give someone a financial gift, particularly a young individual who has an interest in the stock market but is a beginner, consider a ShareBuilder gift card to get them started. This is a good time to introduce young investors to the concept of transaction fees, as well.

21. 2011 United States Mint Silver Proof Set (United States Mint, $67.95). “The 2010 United States Mint Silver Proof Set contains all 14 circulating coins in stunning proof condition displayed in three protective lenses, each bearing the S mint mark of the United States Mint at San Francisco.” Great for collectors or non-collectors, and it can inspire and create young numismatists.

22. Kids’ Savings Account (ING Direct, $25 and up). Opening a new ING Direct Kids Savings Account is a great way to teach a child or teenager good saving habits and concepts like compound interest.

Here are some more ideas:

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UPS Premium Service

This article was written by in Consumer. 17 comments.

Delivery company — or logistics company, depending on how you look at it — UPS is taking a page from Amazon.com’s Prime service and offering better delivery options for customers willing to pay a fee.

When I didn’t work out of my home, I’d often come back after work to be greeted by the familiar yellow slip sticking to my front door. While occasionally, my package would be waiting with a neighbor, occasionally my signature was required. And less frequently, for particularly valuable deliveries, my signature was needed in person. I’ve made many trips to the UPS delivery warehouse 45 minutes from my house in order to pick up a delivery I couldn’t be home to receive during delivery hours. I had always had the option to redirect delivery to another location, however, after paying a fee. At one point this fee was $4, but I believe it has increased over the past few years.

UPS TruckOn October 3, UPS is launching the “My Choice” service. The basic service is free, and this provides a notification a day in advance of a scheduled delivery. The notification will include a four hour window during which the package will be delivered. The company is offering a convenient feature to pre-authorize a delivery needing a signature. This is an excellent feature for someone who receives UPS deliveries regularly.

If you want more than the basic service, pay a $40 annual fee to receive access to a delivery tracker. UPS does a good job of telling you when your delivery is on the truck on the way to the point of delivery, but this new service is like GPS for your package. Another service available narrows the window during which your package will be delivered. For another $5, you’ll receive a two-hour window rather than a four-hour window.

Are these features worth a $40 annual fee? If I weren’t working from home, I might take advantage of pre-authorization to ensure my packages are delivered without me needing to be present, but I’m not sure I’d pay a $40 annual fee for a tighter guaranteed delivery time.

zyphbear

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Poverty Rates Up: How to Avoid Poverty

by Flexo

According to the 2010 Census data, the poverty rate for Americans is up to 15.1 percent, matching the rate from 1993. 46.2 million people are living below the poverty line, a level delineated by earning less than $22,314 a year for a family of four or $11,139 a year for an individual. 22 percent of ... Continue reading this article…

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Bank of America Cutting More Jobs

by Flexo
Bank of America

After Bank of America investors have endured a year of suffering, Bank of America employees will start to feel the company’s troubles. Although the bank already announced significant layoffs this year, hot on the heels of a $5 billion boost from Warren Buffett, an overdraft fee lawsuit settlement, and a settlement for a lawsuit pertaining ... Continue reading this article…

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Spirituality and Money: Hope in Hard Times

by Ellen Cooper-Davis

This article is written by Consumerism Commentary’s new columnist, Ellen Cooper-Davis. Ellen’s column will look at the role of spirituality within the context of personal finance. For an introduction to this column, see Ellen’s first article, The Pastor and the Purse. Your feedback is welcome. “There’s a phrase we live by in America: ‘In God ... Continue reading this article…

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Warren Buffett Doesn’t Want to Be Coddled

by Flexo
Warren Buffett Coddle

Update: The concepts implied by Warren Buffett have formed the basis of President Obama’s Buffett Rule proposal. Warren Buffett is staying in the news. I wrote recently about his desire to continue investing in stocks during market volatility, and today he published an opinion piece in the New York Times. He laid out the facts ... Continue reading this article…

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