It’s been a while since I’ve taken the pulse of our readers on a hot topic, so I figured it was time. I’ve been paying closer attention than usual to the various proposals in Congress dealing with healthcare and health insurance reform, and I’ve made a list of the different things they’re trying to tackle. (You’ll notice there’s nothing in the list about assisted suicide or bureaucrats deciding who lives and who dies… that’s because nobody is proposing anything of the sort.)
So, press “Yay” on the things you want to see change in America, and “Boo” for those that aren’t important to you. If you think the state of healthcare in America is just fine the way it is, and you’re happy with healthcare costs rising three times as fast as wages, then by all means press “Boo” for everything on the list.
I’m still looking for a second news source to back this up, but the circumstantial evidence is strong. We got a notice to our “tips” e-mail address about a loophole in the recently-passed Credit CARD Act of 2009, namely:
The law requires credit card companies to give 45 days notice of a rate increase, but only if the card has a fixed rate. The law also requires rates to stay the same for one year after a new account is open, but only for fixed rates.
And since credit card issuers are proactively punishing customers as a result of new legislation which hasn’t taken effect yet, they’ve also decided to start changing fixed-rate cards to variable-rate cards. Simply switching the rate type will enable the banks to raise rates whenever they want, again.
With a variable rate, rates generally rise as interest rates rise, and fall in a declining-rate environment. With rates already near a bottom and expected to rise, most consumers probably won’t see their rates fall further.
Not all customers are being affected, but Bank of America, Chase and Discover have all announced this change for some of their customers.
With some of the banks, you can opt out of the change, which of course comes with a requirement to close the account. The last time our readers encountered this widespread kind of change, they had a surprising amount of luck getting their original terms back by calling and talking to the right people, in the right way. Hopefully many of you can manage the same thing this time. Let us know in the comments.
The recently passed Credit CARD Act of 2009 is meant to protect non-risky customers from arbitrary rate hikes, among other things.
Now, Senator Chris Dodd of Connecticut is asking Federal Regulators to review recent actions taken by credit companies and possibly force them to undo these punishing moves. Since the law doesn’t go into effect until 2010, he wants Bernanke and company to start regulating retroactively to the beginning of 2009. Specifically, he wants:
credit card companies to review every six months any account where the interest rate has been raised since January 1, 2009. It also directs the companies to reduce the rate if the customer has become less of a credit risk or the circumstances that warranted the increase are no longer present.
It’s basically taking the spirit of the law recently passed and helping out non-risky customers now instead of later. Of course, in light of what we recently learned about how credit issuers decide what makes a person risky, I’m sure there are still plenty of loopholes available.
It’s finally here! Welcome to the first edition of the Consumerism Commentary Podcast. Today Tom and I discuss tips for surviving financially through an economic and personal recession. The feature, however, is Tom’s interview with Peter Pham, the CEO of price fighting service BillShrink.
[00:00] Introduction, surviving financially through a recession [18:19] Interview with Peter Pham [26:45] End
Members of the email newsletter might recognize the discussion with Tom and myself as an edited version of the interview shared in the exclusive “pilot episode” of the podcast.
If you have suggestions for the next edition of the Consumerism Commentary Podcast, or reactions to these interviews, feel free to leave a comment here or email your thoughts to podcast at this domain name.
Senate Banking Committee Chairman Christopher Dodd and Senator Chuck Schumer, saying credit-card providers are “aggressively” raising interest rates, asked the Federal Reserve to immediately limit interest rate increases on existing balances.
We’ve previously reported on the recent aggressive tactics of credit card companies:
So you can be sure we’ll keep a close eye on this latest request of the Federal Reserve. Does it comply with the spirit of the “free market?” Absolutely not. Will it save many Americans from tipping over into bankruptcy or homelessness? We might just find out.
Now that Tax Day has come and gone again, and anger is subsiding, let’s spend some time thinking about what a better system might look like.
Have you heard of the “Fair Tax” proposal? I may be late to the knowledge party (Flexo mentioned it briefly in December 2007 when comparing presiential candidates’ ideas), and it’s likely I had disregarded it because I was confusing it with various Flat Tax ideas, which failed miserably in the 1990s. But it’s different; here are the basics:
It’s a Tax on Spending and Nothing Else
Let’s start with the greatest part first: Federal income taxes get repealed. This includes personal, estate, gift, capital gains, alternative minimum, Social Security, Medicare, self-employment, and corporate taxes. That’s just about all the big boxes on your 1040. Instead, the Federal government collect revenue from sales of new goods and services (unlike Europe’s VAT idea, used goods are not taxed again).
According to the people who’ve calculated what would be a “fair” tax, a national sales tax of 23% would completely replace the need for all those kinds of income taxes. We’d be collecting the same amount of revenue. In short: because you take home your whole paycheck, the amount you spend or save is entirely up to you. Things in the store would appear to cost more than you’re currently used to, but a $77 item would still cost you $77 (read the complex bit contrasting tax-inclusive and tax-exclusive).
Wealth isn’t Penalized
Under our current progressive income tax system, you’re taxed more when you earn more. Subsequently, wealthy people (for whom I admit I do not yet feel sorry) are likely to complain that they are being “taxed to death”. The most common understandable complaint sounds like this: I don’t benefit x% more from common Government services more than anybody else, why should I pay x% more? And the unsatisfactory answer is always: because nobody else can afford it. (Then the argument goes off onto various tangents, some of which make sense.)
In the Fair Tax proposal, you choose how much you get taxed by choosing how much to spend. One of the assumptions behind the proposal is that if a) you already have plenty of extra money after your budgetary needs are met and b) you’re taking home your whole paycheck, that you’ll buy things that you want. I know I would, and I’m not exactly wealthy.
It’s Meant to be Revenue-Neutral
Replacing Federal income taxes with a 23% Fair Tax is supposed to mean that almost* all common services being paid for will continue as usual.
I ran our household finances through the Fair Tax Calculator and came up with these results:
2.40% more spendable income
$1,984 more purchasing power
$3,114 less federal taxes
These are fairly modest differences, which makes me feel better, and helps convince me that the idea really is “revenue neutral” and not a scheme to shut down Government services without considering the consequences.
* Taxes would be much, much simpler, and so the IRS would probably have to lay off some people. CPAs, likewise, would probably need to find other work.
Essential Goods and Services are Not Taxed
Well, sort of. Just like many groceries don’t have sales tax applied now, there are essential staples that none of us can live without that under the Fair Tax plan, you would get reimbursed for. The novel thing is that you’d get a “prebate”: a rebate before it happens. This is different depending on the size of your household, see the full table.
Conclusion
I’m not ready yet to conclude whether this is a better idea. It’s certainly simpler, and on its face it’s very tempting and does indeed seem more fair. I’m going to keep reading all the Pros and Cons I can find (from only reputable news sources, naturally). In the meantime, I’d love to get your opinion.
Finally, this isn’t just an idea floating around in the ether. There is a bill proposed in the U.S. House that is up for consideration. If you like the idea, I encourage you to call your congresspeople.
About the author: This is a guest article by The Weakonomist, an anonymous blogger responsible for everything at Weakonomics.com. As a banking insider he’s witnessed the economic implosion from inside the bubble. You can usually find him at the corner of Wall Street and Main Street throwing rocks at traffic.
My retirement accounts have dropped as hard as any index, I’ve watched friends and loved ones lose jobs (and fear for my own), you can’t go through 30 minutes of news without a sad story about someone losing their home. You can’t trust your government, you can’t trust Wall Street, some can’t even trust their own families with money anymore. We have no money, no way to make more money, and no end in sight to this vicious cycle. All of this is a result of the worst recession since the Great Depression, but none of the above is the worst thing we’ve lost.
As much as I pretend to be an amateur economist, I’m just as much an amateur psychologist. I’m a student of behavioral economics. And our economy has taken its worst blow in the form of self-esteem. More powerful than the loss of trillions in wealth and more devastating than losing your home is the long term effect these events have on your state of mind. It’s important not to get caught in this trap as it can hinder you from getting back on your feet. Let’s look at three examples of how you might get damaged:
The Terrified – Knowing the rules for retirement saving, our friend here diligently saved 15% of his income for retirement. After 10 years of saving he is basically no better off than before because the markets are so down. Distraught, he loses faith in the market’s ability to fund his retirement. He won’t put any more money into stocks and mutual funds because he’s afraid of losing it.
The Failure – This guy has worked hard his entire life. He never made a ton of money but was able to finally buy a house in 2004. He lost his job and then lost his house. Saddled with the guilt of letting his entire family down, he has lost the will to pursue the American Dream.
The Worthless – School never came easy to this guy, but he worked hard and got all the way through college. Having been told all his life that a college degree will help in his career, he graduated only to find there are no jobs to be had. He feels there is something wrong with him. Despite his desire to contribute positively to society, he instead sees a world that doesn’t want him.
These three guys have the same thing in common, they followed the rules, they played the game, and they lost. Due to factors they couldn’t control their self-esteem and faith in the system is tarnished. If you’ve seen the effects of depression first-hand you know exactly how bad this can be.
But all hope is not lost for these folks. They need to get back on their feet and find ways to get over this slump. It will do no good for them to try and convince themselves it’s not their fault and they couldn’t have stopped it, the human mind is too stubborn to accept that. Instead they must trick their own consciousness into feeling good again.
Our Terrified friend must forget about the past. Rule number one of the investment rules he learned was that past performance is no indicator of the future. That goes for the good years and the bad years. Don’t pull out of the market, because if the month of March has taught us anything it’s that the best returns come right after the worst ones.
The Failure has forgotten what the American Dream is all about. Half of the dream of success is failure. You can’t completely win at something until you’ve lost. It’s true some people hit a stroke of luck and it makes it look easier, but if you give up on a dream because of a setback then you aren’t working hard enough for it. The only way not to feel like a failure after a loss is to turn that loss into a lesson and then create success.
Finally, Worthless can look into new methods of adding value to this world. If you’re out of work or hate your job, volunteer. Making your resources available to a cause without an expectation of being compensated is perhaps the greatest value offered to the world. It fills whitespace on a resume, makes you a few friends, and most importantly makes you feel needed.
Just as a recession can be a vicious cycle of layoffs, deflation, and negative market returns, your mental health in this environment can be a downward spiral of pessimism, depression, and fear. However identifying these feelings is the first step towards recovery, just like an economist identifies the weakest points in the world of commerce. Be proactive; help yourself and help others stem these emotions and we’ll all work faster towards recovery.
If you enjoyed this article, please visit Weakonomics and subscribe to the blog’s RSS feed. We would appreciate your comments and reactions, so if you would like to contribute to the discussion, add your comment below.
A reporter from the Washington Post is looking to hear from Consumerism Commentary readers who are coping with wage deceleration or stagnation. If you have had to make changes to your lifestyle due to wages or salaries that haven’t been rising as quickly as expenses, you are a perfect candidate for this article in progress. The reporter would like to talk to you about the effect of your stagnant income on your ability to save or pay for a child’s education, or any other kind of adjustment you are experiencing.
If this description fits your experience, please leave a comment here or send me an email (flexo at Consumerism Commentary dot com), describing your situation. I will put you in touch with the reporter.
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Jim: They should definitely increase IRS funding for enforcement. But its not a simple matter of the IRS failing here. IRS budget is approved by congress.... on Enforcing Tax Laws Works. Go Figure.
Paul: Apex, very well said. You expressed the doubts & frustrations about deficit trimming through IRS enforcement much better than I did. on Enforcing Tax Laws Works. Go Figure.
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