To help Americans pay for the increasing price of a gallon of gas, Hillary Clinton is suggesting a suspension of the 18.4 cent per gallon tax on gasoline and 24.4 cent per gallon tax on diesel from Memorial Day through Labor Day while enacting a “windfall profits” tax on the oil companies which have been making money hand over fist through out 21st century so far. John McCain is also in favor of a gas tax “holiday,” but Barack Obama calls this strategy pointless and possibly more harmful for the economy.

Obama figures that the gas tax holiday would save American consumers about 30 cents a day while underfunding the federal fund that pays for road improvements. And while we’re in an election year, Obama points out that Clinton and McCain’s positions are political posturing moves rather than good economic solutions.

Ignoring the fact that when a tax holiday is in practice, gas prices might simply rise to negate the savings and match what consumers are willing and able to pay, the 18.4 cent theoretical reduction in a gallon of gas will be almost invisible. With a gallon of gasoline around $3.60 for me here in New Jersey, this 5% discount doesn’t even bring the price down to its level from a few months ago.

Clinton suggests paying for the loss of government income by increasing windfall profits taxes for the oil industry. If there is a gas tax holiday, should oil companies pay for the loss of government income through taxes assessed for earning significant profits in this economy? I feel no pity for the large corporations, and I wouldn’t mind if their taxes increase. However, I don’t think this solution would improve the economy.

As a country, we seem to be willing to continue spending on gasoline no matter what the price, but perhaps that is only because we have little choice. If we stop driving, we stop going to work, earning money, and feeding our families. We’re ready to spend as much on gasoline as necessary to continue our lives, giving oil companies the freedom to keep pushing prices upwards.

The oil industry obviously is not happy about the idea that their profits could be taxed, claiming that taxes would eat into available capital for new production, but their profits are mostly used for buying back stock rather than research and development.

Rather than Clinton’s plan to tax oil companies, McCain wants to freeze or cut spending to pay for the gas tax holiday. Obama thinks these suggestions sound nice to voters but would have little real effect. What do you think?

Photo credit: x-eyedblonde
Obama attacks Clinton’s gas tax plan [AP]
McCain calls for a summer ‘gas-tax holiday’ [AP]
Taxing oil profits: Proceed with caution [CNN Money]

There are a few obvious ways the economy effects the job market. In times of recession, large companies often cut back on resources, offering fewer opportunities for movement. Smaller companies suffer as well, particularly those without the flexibility of large companies.

The economy has a psychological effect on careers, as well. While the economy is booming, there is an optimistic sentiment pervading the job market. People are encouraged to think about the possible. People entering the job market are encouraged to discover their talents and desires and find a creative way to turn them into careers.

During an economic downturn, career advisers encourage practicality. What jobs would provide the best chance for long-term stability? With the current recession (or possible recession according to the government who refuse to be definitive on the subject), people are more inclined to seek out jobs that aren’t affected by the economy.

Kiplinger targets several industries that are “recession-proof.” If the most important aspect of a career is financial security, then it may be wise to seek out jobs in these categories.

Health care

Doctors, nurses, and pharmacists will always be needed in our society. In fact, with an aging baby boomer population, I would predict that the next 20 years will see a strong demand for more people entering the health care profession. I do not agree, however, that this industry is immune to recession. Many hospitals are funded by states, and states will not hesitate to cut back their health care budget when funds run low. That’s the case right now in New Jersey, where budget cuts may cause some hospitals to shut down.

Education

Unless people in this country stop having children, there will always be an increasing demand for teachers in general. Tough economic times, however, cause policy makers to turn back to “the basics” in order to develop young adults who can compete in science and math with those from other countries with rigorous curricula. In these same times, when budgetary cuts are required, arts programs are often the first to be reduced or eliminated. My opinion is that “special education” will see the biggest expansion in the next 20 years, regardless of the state of the economy.

Security

Economic depression goes hand-in-hand with increased crime rates, so you can be sure that security jobs will remain strong regardless of the economy. Police officers and security guards will be in high demand

Environmental sciences

We’ve seen that as gas prices increase in this country beyond the point of demand elasticity, people buy fewer gas-guzzling vehicles and trend towards more practical modes of transportation. Car manufacturing companies are watching this trend in order to continue creating vehicles that consumers want. This is indicative of a trend towards the search for more environmentally-friendly solutions. The Bureau for Labor Statistics believes that jobs in the environmental industry, like ecologists and hydrologists, will see 25% growth over the next decade.

Government

These days, neither Democrats nor Republicans seem interested in reducing the size of the federal government. Whether or not you agree with this approach, it means that government jobs will remain fairly secure. Kiplinger makes a point of mentioning that it’s difficult to be fired by the government for poor performance. That’s good news for lazy people.

When I have children, I hope that I can guide them in a world in which they don’t have to worry about “security” when choosing what to do with their lives. The job security promised by the Kiplinger article is mostly exaggerated, and at worse, downright mythical. Working for someone else, regardless of industry and economy, puts one’s job security outside one’s control. While the industries listed above are better positioned to last in an economic downturn on average, any one individual can have a drastically different experience than the average. I hope I will be able to offer advice to my children similar to the philosophy I mentioned above as more popular during a thriving economy: Discover your talents and interests, and be passionate about them.

My advice would continue: If you must be worried about job security, learn how to be flexible and excel at many things in order to make quick changes to your career if necessary. Finally, aim for self-sufficiency. If you have a boss other than yourself, you don’t have job security.

Recession-Proof Careers [Kiplinger]

The Federal Reserve may soon become much more powerful if Treasury Secretary Henry Paulson has his way. Earlier today, he released the “Blueprint for a Modernized Financial Regulatory Structure,” which includes a number of recommendations designed to take power away from the U.S. Securities and Exchange Commission.

Paulson’s recommendations

The Federal Reserve should be able to increase liquidity by lending directly to “non-depository institutions” (such as investment banks), and to facilitate this, the Fed will have access to information at the investment banks. The government would have the power to perform on-site inspections if they so desire in an effort to quickly lend to the businesses if necessary.

Paulson wants the Federal Reserve to create a Mortgage Origination Commission to oversee and rate how states license and regulate lenders and create minimum qualification standards for licensing.

The Treasury Secretary believes the Federal Reserve should regulate state-chartered banks, payment systems, and insurance companies. The SEC would merge with the U.S. Commodities Futures Trading Commission to oversee traditional investments as well as some of the more complicated structures.

With these suggestions implemented, the government will regulate “business conduct” ensuring consumer protection, including rules for writing term disclosures across the board of financial products.

Reactions

Nomi Prins points out that the Federal Reserve has spectacularly failed recently with its attempts to stimulate and regulate, so providing more power to the agency is a step in the wrong direction.

All of the plan’s suggestions are cosmetic. Instead, let’s please have a serious discussion about the nature of the banking system structure itself: its complexity, its responsibility, and the proper role of the federal government in regulating it. The United States has had such a debate before, leading up to the landmark 1933 Glass Steagall Act. We can and should have such a sweeping debate again.

Traditional small-government Republicans would most likely agree with Nomi. The Democrats are critical of the plan as well, saying the proposal doesn’t go far enough to provide direct help to consumers and to hold investment banks as accountable as depository banks.

I agree that regulation should be consolidated for all financial firms and the same standards for reserve holdings should apply to any institution that has access to direct lending from the Federal Reserve. What do you think?

Image from Wikipedia
Treasury Releases Blueprint for Stronger Regulatory Structure [U.S. Department of the Treasury]

CNN Money is featuring stories of 15 households that are facing dire financial straits thanks to the economic downturn. Even a rebate check this summer won’t go far to help these families. While some better decisions may have helped them prepare for the direct effects of a recession, hindsight is always 20/20. Here are the some of the highlights from the featured stories:

Suzzanne Cromwell: A $250 commute

Suzzanne is a 39-year-old program coordinator from Massachusetts. “Sadly, my husband and I were priced out [Cambridge] when we decided to buy our first home almost two years ago. We decided to move to Lowell, about 10 minutes shy of the New Hampshire border… I will most likely need to leave my wonderful job as program coordinator due to the rising cost of gas. It costs me about $250 a month to commute to work…”

Billie Romero: Pocketbook strain hits home

Billie is a 32-year-old nurse from Louisiana. “We have two kids we are TRYING to keep in private school. [Like] most working couples, we want the best education for our children, because not just ‘the rich’ deserve private school. We want to be able to buy a home AND pay the bills.”

David Martorano: Waiting for the bust

David is a 37-year-old physician from California. “I am a physician renting in Pacific Palisades, where my practice is located… I have been a holdout from purchasing for the past two years because of my belief that the market is at least 20% inflated… People are still lining up to purchase entry-level properties, and paying absurd amounts, up to $700 per buildable square foot… When I ask them why, they still say it’s the Palisades and it can’t go down.”

Tracey Feller: Relocation disaster

Tracey is a 37-year-old purchasing analyst from Alabama. “I accepted a job in February 2007 that required relocation… we were sure that our house in Three Rivers, MI would sell. Not the case… our home in Michigan is set to got into foreclosure April 11 and we also fell behind on our home in Alabama, but were able to work out a repayment plan with the lender.”

RJ Hernandez: Subprime surprise

RJ is a 27-year-old vice president of business development from California. “As a single, 27-year-old executive and first-time homeowner who got a subprime loan (which resets in 2010) and who got laid off from a project management job after three years to find himself now working for a subcontractor working for senior management, let me tell you—these are strange days…”

Shannon McCauley: Burned by fuel cost

Shannon is the 28-year-old owner of Smokin’ Stokes BBQ & Catering. “Our in-store sells have dropped almost 50%... There are so many less people eating out these days. We have opened credit card accounts just to pay our bills, and those are almost maxed out… We are in our late 20s with a 2-year-old child and a mortgage. We are at the end of our rope. The answer is obvious: CUT FUEL COSTS NOW.”

These are just a selection of the stories, but the theme is clear. If a recession is prolonged (which I don’t think it will be, but I can’t see the future) many people are going to have to change their expectations. Private school may not be an option for the kids. It may be time to trade down to a more affordable house. Will fuel prices go down? Probably, but what if they don’t? The good job in the good location may be out of reach thanks to commutation. The dream of having a Full House like The Brady Bunch or Eight is Enough may be replaced with Two and a Half Men.

What other expectations will the “typical American” consider changing if faced with a new reality of recession?

America’s Money: In their own words [CNN Money]

The IRS has posted a schedule indicating when tax payers, if eligible, will receive their tax payments. Keep in mind that these are estimates and the IRS could very well not meet this schedule. The schedule is based on the final two digits of your Social Security number. If you file jointly, use the last two digits of the primary filer’s Social Security number.

If the IRS has your banking information on file, as they would if you entered the information on your 2007 tax return in anticipation of a refund via direct deposit, these are the dates by which you will (most likely) receive your refund.

00 through 20: May 2
21 through 75: May 9
76 through 99: May 16

If the IRS does not have your direct deposit information on file, then you can expect a check to arrive based on this schedule (approximately).

00 through 09: May 16
10 through 18: May 23
19 through 25: May 30
26 through 38: June 6
39 through 51: June 13
52 through 63: June 20
64 through 75: June 27
76 through 87: July 4
88 through 99: July 11

More information on the economic stimulus tax rebate at Consumerism Commentary:

• Economic Stimulus Tax Rebate Calculator (final version)
• How Will the Economic Stimulus Tax Rebate Affect 2008 Tax Returns?

Here are links to official IRS information regarding the new tax credit:

• IRS Announces Economic Stimulus Payment Schedules
• Economic Stimulus Payment Calculator (official version, but still an estimate)
• Economic Stimulus Payments Information Center

Will politicians say the word recession? Not if they’re serious about helping their party get elected. Yet, it feels like we are in a recession—or at least, that’s what the media wants us to believe. The stock market, measured by the indexes, is certainly in a downward trend, but I suppose I agree with Kiplinger. There are some reasons to be happy.

1. The rebate check. Soon, most Americans will receive a check from the IRS, possibly for $300, maybe $600, or even $1,200 or somewhere in between. The government’s intention is to spur the economy—or is it? Perhaps it’s more of a feel-good measure in a year when Democrats and Republicans alike must create fan-friendly press. The last time the IRS sent rebate checks en masse, it didn’t have much effect on the economy. In fact, the economy was already recovering by the time the checks arrived.

If you’re wondering how much of a rebate you’ll receive, use this economic stimulus tax calculator. The “rebate” is an advance on a new tax credit that will appear when you file taxes for your 2008 income. If you qualify, you’ll get the rebate this year instead of next year.

2. Undervalued stocks and bonds. Go for it. Yes, in general it’s bad to time the market. Yes, it’s possible stocks in general will go down more this year. But I believe that dips like the one we’re experience are perfect opportunities for long-term investors to pick some good values company by company or buy the overall market through a low-cost index fund like VTSMX.

3. Lower interest rates. Kiplinger says that as the Federal Reserve lowers the federal funds target interest rate, opportunities are available for those with good credit ratings to borrow cash as needed. I’m not quite sure this has played out quite yet. From what I’ve seen, banks are still being tight and not lending as much even to those who are well qualified. Interest rates on mortgages certainly haven’t dropped much. In fact, rates for a 30-year fixed mortgage, a typical loan for qualified home buyers, have increased in the last few months, from 5.5% to 5.9% (source: Bankrate).

4. New tax breaks. “You might owe less to the IRS this year thanks to a new deduction for private mortgage insurance, an extension of the sales-tax write-off and a boost in the alternative minimum tax exemption amount.” This is helpful for home buyers who couldn’t afford to put 20% down on their house and were required to resort to paying PMI.

5. Falling house prices. Well, at the moment, there are more people trying to sell homes then there are buyers. This inequity between supply and demand means that in order to sell houses, prices must fall. But as there are fewer people looking to purchase than there are looking to sell, this benefits fewer people than increasing house prices.

6. Higher retirement account limits. Kiplinger suggests using the rebate check to turbocharge your retirement savings. This year, you can invest $5,000 (or $6,000 if you’re over 50 years old) in a Roth, Traditional IRA, or a combination of the two. If you have a 401(k) you can contribute up to $15,500 (plus another $5,000 if you’re over 50). These limits will continue to increase, too.

7. Help with college bills. Got student loans? If you’re a teacher or if you work in public service, you may be able to receive grants. Those with high debt and low income will benefit the most.

8. New rollover option. If your adjusted gross income is $100,000 or less, you can now roll over your 401(k) directly into a Roth IRA without having your funds go through a Rollover Traditional IRA first. Not only that, but if your income is above the $100,000 threshold, just wait until 2010 when the income limit disappears. For any funds in your 401(k) from a pre-tax source, you will owe tax when you roll over into a Roth IRA, providing early tax income to the government, possibly to help pay for expensive programs like Social Security.

The option I’m most excited about is easily number 2, undervalued stocks. I was interviewed by Columbia News Tonight, a weekly television program produced by Columbia University’s Graduate School of Journalism the other day, and we talked about this topic. I’ve increased my 401(k) contributions to the maximum this year, a feat made possible thanks mainly to my additional income not from my employer, even though my retirement account’s value is down about 10% so far this year.

Image source: azrainman
Good News in Hard Times [Kiplinger]

Are you concerned about your ability to maintain your current financial position? I am. Sure, I have an emergency fund, a significant cash cushion beyond the emergency fund, and steady income.

But I have taken on risk. My long term investments are invested in the stock market which has proven to be more than a little volatile lately. If I needed to access those funds, a market downturn and early withdrawal fees would be damaging.

My income is constantly at risk; at the office, my employer might decide our entire department can be outsourced. My side business income is almost entirely dependent (directly and indirectly) upon the good graces of a certain search engine to provide income-producing visitors.

Thus, I’m not surprised that 78% of working-class millionaires, individuals with steady jobs to earn a living and a net worth between $1 million and $10 million, are also nervous about maintaining their wealth. The main differences between myself and the “working rich” besides my significantly lower net worth are purchasing habits. Though followers of The Millionaire Next Door might disagree, multi-millionaires are consumers of luxury products. I am not. I’m prone to a few luxury items once in a while, but even when doing so, I look for reasonable deals and I’m not swayed by luxury brands.

21% of working-class millionaires have started to cut back their luxury spending, although they will continue to give to charity and provide the best education for their children.

But few are trading down to Target. They’re just buying fewer expensive items than they used to. Middle-class millionaires won’t stop shopping anytime soon. They’ll still be grabbing the tech gadgets they love so much, like BlackBerrys, iPhones, GPS systems, computer accessories and software. Why? Those products, in addition to exuding status, also serve practical needs. They will also go ahead and get nice things for the home, like that big-screen television set or top-grade appliance. And they won’t pinch pennies on education and health care, things they consider to be of prime importance.

Are you concerned that you won’t be able to retain the level of wealth to which you’ve become accustomed?

The Working Rich Are Nervous [Yahoo Finance/Forbes]

I’ve updated the economic stimulus tax rebate calculator. The old version, taken from PBS Newshour, did not take into account changes included by the Congress before passing the bill. The complete details of the economic stimulus package are provided at the Library of Congress. Take a look at the new calculator to find out how much you’ll receive from the U.S. government this summer, if anything.

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