Confidence From Home Builders Drops

Confidence From Home Builders Drops

While Housing Starts reflect real commitments from home builders, there is another index that asks builders to rate housing conditions and the general economy.

Compiled by the National Association of Home Builders, this index is a weighted average of a many indexes, including: present sales of new homes, sales of new homes expected in the next six months, and traffic of prospective buyers in new homes.

According to the latest from the NAHB: “Growing inflation concerns and ongoing supply chain disruptions snapped a four-month rise in home builder sentiment even as consumer demand remains robust.”


• Builder confidence in the market for newly built single-family homes moved one point lower to 83 in January.

• The HMI has hovered at the 83 or 84 level, the same rate as the spring of 2021, for the past three months.

“Higher material costs and lack of availability are adding weeks to typical single-family construction times,” said NAHB Chairman Chuck Fowke. “NAHB analysis indicates the aggregate cost of residential construction materials has increased almost 19% since December 2021. Policymakers need to take action to fix supply chains. Obtaining a new softwood lumber agreement with Canada and reducing tariffs is an excellent place to start.”

“The HMI data was collected during the first two weeks of January and do not fully reflect the recent jump in mortgage interest rates,” said NAHB Chief Economist Robert Dietz. “While lean existing home inventory and solid buyer demand are supporting the need for new construction, the combination of ongoing increases for building materials, worsening skilled labor shortages and higher mortgage rates point to declines for housing affordability in 2022.”

“The HMI index gauging current sales conditions held steady at 90, the gauge measuring sales expectations in the next six months fell two points to 83, and the component charting traffic of prospective buyers also posted a two-point decline to 69. Looking at the three-month moving averages for regional HMI scores: • The Northeast fell one point to 73; • The Midwest increased one point to 75; and • The South and West each posted a one-point rise to 88, respectively.

Source: Financial Media Exchange LLC

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Americans Lose Trillions Claiming Social Security at the Wrong Time

Americans Lose Trillions Claiming Social Security at the Wrong Time

A lack of knowledge leaves individual retirees dumping thousands of dollars out of their own pockets.

The graph below says it all. The age at which most people claim Social Security (green line) is opposite to the age at which they should claim Social Security (purple line). According to The Retirement Solution Hiding in Plain Sight: How Much Retirees Would Gain by Improving Social Security Decisions, “retirees will collectively lose $3.4 trillion in potential income that they could spend during their retirement because they claimed Social Security at a financially sub optimal time, or an average of $111,000 per household.”

Figure 1: Optimal vs. Actual Social Security Claim Ages

This comprehensive study observed 2,024 households, considering each household’s outside resources, spending, health, and longevity to determine how much income and wealth they would have if they had taken Social Security at the various ages of eligibility.

Although later claiming typically caused wealth to drop during a person’s 60s as they drew down their personal retirement accounts, this wealth drop was more than made up for by the late 70s, when Social Security income was higher.

In order to isolate the effect of claiming age, the study did not consider the effect of working longer. But in real life, a person who decides to maximize benefits by claiming at 70 might choose to work a few years longer, and this would mitigate some or all of the wealth drop in their 60s. This appears to be the first study of its kind to consider the impact of claiming age on not just the Social Security income, but other assets and income as well, as optimal Social Security claimingcan lead to higher account balances, which in turn generate more income. Only 4% of retirees make the optimal claiming decision.

The study found that a claiming age of 62–64 is optimal for only about 8% of adults (primarily those with short life expectancies or low-earning spouses)—yet about 79% of eligible adults in the sample claimed at those ages. A claiming age of 70 is optimal for 71% of primary wage earners—yet only 4% of the adults in the sample claimed at that age.

Among those at the highest wealth levels, 99% make suboptimal claiming decisions. Yes, you read that right. Ninety-nine percent of higher-wealth households make suboptimal claiming decisions. While it’s true that wealthy individuals can afford to leave Social Security benefits on the table, what’s troubling is that they are not getting good advice from their financial advisors.

Here at Boston Harbor Group, we pride ourselves for making this matter a very important one when elaborating the financial strategies for our clients. We show our clients calculator reports and different scenarios to reveal their personalized and optimal claiming time.

For retirees, financially suboptimal decisions add up to a loss of $2.1 trillion in wealth and a loss of $3.4 trillion in income. In its conclusion the report mentions a few ways to deal with this, including:

  1. Make early claiming an exception, reserved for those who have a demonstrable need to claim benefits before full retirement age.
  2. Change the way we refer to early or delayed claiming, labeling a claiming age of 62 as the “minimum benefit age” and 70 as the “maximum benefit age.”
  3. Remove the disincentives wealth management firms have for delivering optimal claiming advice (i.e., the near-term drop in assets) by providing “cover” for executives to make the right financial decision for their clients and the right long-term decision for their shareholders.
  4. Provide SSA with more resources, perhaps in partnership with third-party fiduciaries, to help households determine their optimal claiming age. “That limited investment could help recapture some of the $5.5 trillion lost in wealth and income to retirees and the U.S. economy because of the struggles retirees currently face making the right decision.”


Meanwhile, a recent Gallup poll found that 57% of nonretired Americans now expect that they will live comfortably in retirement, a six-point increase in positivity since last year and the highest reading since 2004.

Only 33% of nonretirees see Social Security as a major source of income in retirement (compared to 57% of retirees). Eighteen percent of nonretirees aren’t counting on it at all. Instead, nonretirees tend to focus on 401(k)s, IRAs and other retirement savings accounts as being a major source of income. They also are planning on having multiple sources of income in retirement, including part-time work, home equity, and rent and royalties.

Want to know more? Contact us!


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EQUIFAX Breach Settlement: How To Claim Your Share

EQUIFAX Breach Settlement: How To Claim Your Share

Two years after Equifax’s massive data breach affecting over 140 million people, the credit bureau and the Federal Trade Commission have agreed to a $700 million settlement. The money will be split between government fines, legal fees, and consumer fees. According to the FTC’s press release, $425 million will be set aside to help people affected by the data breach.

Individual consumers may be able to claim up to $20,000 in compensation for damages from the breach if they can prove they were harmed. This payment can be made for expenses you paid as a result of the breach including unauthorized charges, the cost of freezing your credit file, credit monitoring service costs, attorney fees, postage fees, and more.

The FTC also says you may be compensated for your time. Depending on the circumstances, you can get $25 per hour up to 20 hours. You must be able to describe the actions you took during each hour and how long each activity took. If you are claiming more than ten hours, you must also provide documents that show identity theft or fraud.

The settlement also provides free credit monitoring for up to ten years for all breach victims. If you already have credit monitoring, you may request $125 instead.

To file a claim, you must first check to see if your information was exposed in the Equifax breach. You can check your eligibility by visiting

Once you have confirmed that you have been affected you can begin to file your claim online. You will first be asked to sign up for free credit monitoring or select a cash payment if you already have credit monitoring and promise to keep if for the next six months.

If you have spent time or money in response to the breach, you will move onto the next section. Here you may be asked for documentation depending on your claim. You should be prepared to show any account statements with unauthorized charges, receipts for freezing or unfreezing your credit report after September 7, 2017, receipts of professional fees, and any other applicable information.

If you have been affected by the Equifax breach, you should file your claim as soon as possible. The deadline is January 22, 2020. Benefits will not be sent out until this date as well.

Even if you do not file a claim, you are eligible for free help recovering from identity theft for seven years. You can call 1-833-759-2982 if you experience identity theft. You are also eligible to request six free credit reports per year from the Equifax website starting in 2020.


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Just for Laughs: Airlines Making Billions on Luggage Fees

Just for Laughs: Airlines Making Billions on Luggage Fees

This is a laugh-or-you’ll-have-to-cry situation. Plus which airlines are most likely to lose your luggage, and a little more humor from the not-as-friendly-as-they-used-to-be skies.

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Rational investors make better decisions—or so the thinking goes. However, new studies show that rational thought and emotions are both necessary to cut through the details, focus on what’s important, and get on with the decision that needs to be made.

The science of economics has long been based on the assumption that people act rationally when making financial decisions. Money and math require cognitive thinking, so it’s presumed that rational thinking is what people use when deciding whether to buy or sell, borrow or lend, or choose the right account for their savings. If emotions do enter into the picture, economists argue, they should be minimized in an effort to restore rational thought to financial decision making.

Under orthodox or Keynesian economics, emotions disturb rationality. Even behavioral finance pioneers Amos Tversky and Daniel Kahneman focused on how people think when making financial decisions. Their seminal 1979 paper “Prospect Theory: An Analysis of Decision Under Risk” revealed that people don’t always make rational choices when evaluating potential gains and losses. But these errors in judgment were considered cognitive biases related to how people frame an outcome or transaction in their minds, not the influence of emotion.

Although Tversky and Kahneman came from the field of psychology (Kahneman claims to have never taken an economics course), they essentially ignored the role of emotions and interpreted all deviations from rational thought as faulty thinking. Kahneman won the 2002 Nobel Prize in economics. (Tversky died in 1996.)

More recently, neuroscience has converged with economics and psychology to shed new light on what is going on in people’s brains when they make financial decisions. If financial decision making were purely a cognitive process, all thinking would take place in the prefrontal cortex, and this is the only area that would light up during an MRI scan. But studies have shown that activity also takes place in the amygdale, or brain stem, proving that emotion plays a part in people’s decision making as well. The latest research supports the idea that emotions and rationality are bound up in some way, but researchers are only just beginning to learn how.

Beyond acknowledging that emotions play a role in financial decision making, researchers are stuck. Very few controlled studies have been done to explain how emotions and cognitive thought interact when people make decisions, and some behavioral finance researchers have confessed that they really aren’t sure what an emotion is or how to measure it.

The few studies that have tried to measure the effect of emotion on financial decision making have provided conflicting results. For example, Antonio Damasio, author of Descartes’ Error: Emotion, Reason, and the Human Brain, found that when people couldn’t experience emotion due to brain damage in the area that controls emotions, they made worse financial decisions than control subjects who had no brain damage did. His conclusion was that emotions are essential for rational thought. But a more recent study (“Lessons From the Brain Damaged Investor”) found different results. In this study, subjects who were unable to experience emotion due to lesions in the brain did better on a simple investment game compared with normal players. Because the emotionally impaired players lacked fear, they were more willing to take gambles that had high payoffs. In the end, they wound up with more money than the undamaged players, who were more cautious and reactive during the game. However—and this is important—it was noted that the brain-damaged players did not do very well in the real world. Their inability to experience fear led to risk seeking behavior, and their lack of emotional judgment sometimes led them to get tangled up with people who took advantage of them. Three of the four of them had declared personal bankruptcy.

The upside of emotion Emotion—when it is acknowledged at all in the domain of financial decision making—is normally considered a negative influence. It is widely assumed that fear and greed lead to bad investment decisions, that grief following the death of a loved one causes cloudy thinking, and that euphoria following a lottery win or other windfall makes people do stupid things with their money. But some researchers have proposed that emotions, which protect us under threatening circumstances (think fight or flight), may also have a positive influence when we are engaging in higher-level thought. For one, emotions might push a person to make some decision—any decision—when making a decision is paramount. Depending on the situation, there could be so many options that a person could spend an excessive amount of time sifting through the data, weighing all the choices, and becoming bogged down in an attempt to be wholly rational. Shifting one’s attention to the expected emotion, or how one might feel when anticipating an outcome, might allow the person to cut through the details, focus on what is important, and get on with the decision. Second, emotion may be necessary for the development of intuition in situations where quick decisions must be made using information that has been synthesized on a subconscious level. A study of professional securities traders hooked up to an EKG and skin conductance devices during the trading session found that, far from being completely rational in their thought processes, the most successful traders were having emotional experiences as well. The researchers concluded that emotion enables traders to form intuitive trading “rules” that give them an edge in the markets and in fact leads to a kind of “survival of the fittest” in the trading environment. By this interpretation, emotion is not something to be minimized or ignored but rather embraced and understood, almost as an evolutionary mandate.

Other findings on emotion and risk Here are some other interesting tidbits from the research on emotions and risk: Emotional intensity seems to influence risk perception and risk taking. Some studies have found that people overwhelmed by their emotions cannot act rationally even if they want to. When an outcome is seen as too horrible or catastrophic, people tend to avoid risk calculation as a whole no matter how small the probability of possible negative side effects may be.

Anticipation of gain promotes risk taking, while anticipation of loss promotes risk aversion. Stockbrokers and life insurance agents have known this for years—focusing on potential gains encourages people to take risks, while focusing on potential losses encourages people to avoid risk (and buy insurance). Now neuroscience has confirmed that different areas of the brain are engaged when a person anticipates gains versus losses. More cognitive thought is required to evaluate risk when outcomes are framed as gains rather than losses. In experiments where risky choices were framed as either gains (200 out of 600 people will be saved) or losses (400 people will die), MRIs showed that people spent more time making up their minds when the choice was framed as a gain. Most behaviors are driven by the moment. “We can talk abstractions of risk and return, but when the person is physically checking off the box on that investment form, all the things going on at that moment will disproportionately influence the decision they make,” says Harvard economics professor Sendhil Mullainathan in “The Marketplace of Perceptions.” Communication is central, he says. What matters at least as much as the way products and policies are designed is the way they are communicated to people so they can make purposeful, thought-out choices.

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Child ID Theft: 8 Steps to Keep Your Kids Safe

Child ID Theft: 8 Steps to Keep Your Kids Safe

You are not the only one who needs to be on guard about their personal data safety. Minor children are 35 times more likely than adults to suffer ID theft. Here’s what parents need to know.

The latest target of identity thieves is not you, but rather your children. With little to no financial history, minors make an unsuspecting and easily exploited target. According to a Child Identity Fraud Survey conducted by Javelin Strategy and Research, one in 40 households has had one child who has suffered from identity theft. In fact, children are affected by identity theft and fraud 35 times more frequently than adults.

What makes a nine-year-old’s identity so attractive? Children are not financially active, so this theft is likely to go unnoticed for years. The majority of parents and guardians do not request copies of their child’s credit report, so they don’t notice any fraudulent activity. Yet the damage done can affect a child well into his or her adult life.

The theft that keeps on giving

Take Gabriel Jiminez, who shared his story with the New York Times. Jiminez’s identity was stolen when he was a child. His mother discovered the breach in 1993 when she went to file taxes for the work he did as a child model at age 11. The IRS notified her that taxes have already been filed under Gabriel’s Social Security number.

That’s where Jiminez’s frustrations began. His Social Security number had been stolen by an illegal immigrant, who used it for many years. As an adult, he had issues with his credit report, setting up bank accounts, and getting approved for car insurance. Jiminez was denied credit when he tried to set up phone, gas, and electricity in his first apartment because the thief had already created accounts. His credit rating was badly damaged. Jiminez and his mother were able to identify the thief years ago, but that did not release Jiminez from having to prove his own identity time and time again.

He is not alone in this experience. An estimated 500,000 children are affected by identity theft each year. Children who have their identities stolen can spend the rest of their lives dealing with complications regarding their personal information and identity. Fortunately, there are measures you can take now to prevent these never-ending frustrations.

How to keep the thieves away

Protecting a child’s identity from thieves and fraudsters is similar to protecting your own identity. The first step is to educate yourself and your children on keeping their information safe. You should also:

  1. Keep all of your children’s personal documents locked up. This includes their birth certificates and Social Security numbers, as well as any other documents that contain sensitive personal information.
  2. Protect your children’s Social Security numbers. Before you give it out, ask why someone needs it, how they will keep it safe, and how they will dispose of it. You should also inquire if there is another personal identifier they can use instead for your child. For example, some schools have started to issue randomly selected ID numbers rather than Social Security numbers to identify students.
  3. Check with your children’s school. Some schools share information about their students with third parties. You have the right to opt out of having a child’s information shared in directories or online.
  4. Create a joint bank account. When setting up a child’s bank account, make sure it is a joint account. This ensures that no one can access the account without your approval.
  5. Opt out of marketing materials. When creating bank accounts for your children, you also should opt out of receiving marketing materials in their name. Children should not be receiving credit offers. A pre-approved credit card offer addressed to your child is a goldmine for identity thieves. Opting out ensures that kids will not be sent these offers. If your child starts to receive pre-approved credit cards in the mail, it could be a sign of identity theft. Take proper measures to check your child’s credit report and call the company that sent the materials immediately to remove your child’s name. You should also add your child’s name to the Do Not Mail list. You can do so through the Direct Marketing Association.
  6. Monitor your child’s internet usage. Until your children are at an age where they understand the dangers of the Internet, you should monitor what they are doing online. If your child has an email address to communicate with family members, maintain access to his or her password and check up on who is contacting the child, keeping an eye out for spammers and fraudsters. Set up parental controls and read privacy policies before signing your child up for any online account.
  7. Teach your child how to be safe online. While monitoring your child’s accounts online is important, children themselves should also be taught how to keep their information safe on the Internet. Explain to them that they should not share any personal information on the computer or visit sites without permission. Advise them to show you any emails before they open them and teach them the dangers of phishing. Explain that by opening emails from people they do not know, they risk accidentally giving their personal information to the bad guys. Teach them how to create strong passwords for their accounts and warn them not use any information in usernames that could identify them.
  8. Update your child’s electronic devices. Keep any computer or tablet your child uses up to date with antivirus, firewall, and security software.

Stay alert

Being aware is the first step in protecting a child’s identity. If someone has fraudulently used your child’s identity, there will be an associated credit report on file, so it is a good idea to periodically check for a credit report in your child’s name. To do so, you should contact all three of the nationwide credit reporting agencies ( Experian, Equifax, and TransUnion) and ask them to do a manual search of your child’s Social Security number. When doing so, you will need to provide proof that you are the child’s legal parent or guardian. You can do so by sending a cover letter with your child’s information as well as copies of your child’s birth certificate listing you as the parent, your driver’s license, and proof of address.

If your child’s identity has been compromised, there are steps to take to regain control. First, you should alert the three credit reporting agencies of the fraud. You must request a credit freeze on your child’s account so no new accounts can be opened by the thief. You should also file a report with the Federal Trade Commission as well as your local police department.

Even if your child’s Social Security number has not been fraudulently used, you should still freeze their credit file with the big three credit bureaus. As of September 2019, parents and guardians in all 50 states can freeze their child’s credit report—a great improvement in the fight against child identity theft.

Your own identity is not the only one you have to protect. Following these eight steps can help keep a child’s identity away from thieves and fraudsters, and avoid what could become life-long credit issues.


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How To Avoid Tax Scams This Season

How To Avoid Tax Scams This Season

1. File as early as possible

Even though tax return are not due until April 15th, we recommend filing tax returns as soon as possible to get ahead of potential fraudulent filings submitted on your beheld. Traditionally, tax advisors wait to file close to the deadline if a payment is due, but it may behoove you to file early, regardless of whether there is a payment due, to help prevent fraudsters from filing before you.

2. Be vigilant about suspicious emails ,phone calls and text messages.

Email scams may claim to be from the IRS or others in the tax industry, including tax software companies. These emails may ask the recipient to update or provide important information via a link to a website that appears to be an official IRS website but is actually fake. In addition, some of these websites may contain malware.

The IRS urges anyone who believes they may have received a fraudulent tax email not to click any links in the email and to forward the email to

Tax scams that happen via telephone call or text message often have common characteristics that you can look out for to identify a fake, including:

  • Fake names and IRS badge numbers. Look out for common names and surnames.
  • Scammers may know the last four digits of your Social Security number.
  • The IRS toll-free telephone number can be spoofed on caller ID.
  • Telephone scammers may follow up with an email containing a link to a fraudulent website that is often malware-infected.
  • Background noise that sounds like a call center.
  • Scammers may threaten victims with jail time or driver’s license revocation, then hang up and call back claiming to be the local police or DMV while also spoofing the numbers of these departments on caller ID.
  • Foreign language use and claims that the call is from a foreign embassy investigating tax nonpayment.

3. Verify Schedule K-1 and W-2 Form Requests

Be sure to password-encrypt K-1, W-2, 1099 and copies of tax documents when sending them via email and do not distribute the password via email. We recommend that you use password-protected portals for transferring such documents.

4. Use a shredder

“Dumpster diving” is more common than most believe. We strongly recommend that you use a modern, crosscut shredder to dispose of sensitive documents that contain personal data, including any disposed tax forms.

5. Validate charities

Fraudulent charities have become common, and attackers use breached email boxes to send support requests for these charities to victims. Before providing a credit card or payment to a charity, validate whether the charity is legitimate.

6. Raise Awareness

Share this information with family, friends, staff and colleagues. Knowledge is the best weapon against scammers. If you or someone you know has been the victim of identity theft or a fraudulent wire transaction, reach out to your local police department and/or the FBI for assistance.


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How Rising Interest Rates Affect Financial Plans

How Rising Interest Rates Affect Financial Plans

Whether you are managing debt, investing assets, or developing an estate plan, changes in interest rates represent an excellent opportunity to review your financial plan and consider new strategies designed to capitalize on changing conditions. If you talk with your financial advisors, they will tell you too.

Calling the direction of interest rates has always been an iffy proposition. In many cases, even the experts disagree. But when the economy is in recovery and rates are inching up, it may be time to plan a new strategy. Here are some ways you can tweak your financial plans to take advantage of—or lessen the sting of—higher interest rates.

Liability management

Because debt is the area most directly and most negatively affected by a rise in interest rates, start by reviewing any debt portfolios. Look at credit card debt, mortgage debt (on one or two properties), home equity loans or lines of credit, and auto loans. Check to see if any adjustments need to be made to either pay down debt or switch to a less costly form of debt.

Credit card debt. According to Bankrate, variable-rate cards tied to the prime rate move in direct response to Fed interest rate action. Fixed-rate cards are less volatile, but they are not a haven from higher rates because issuers can—and will—raise the rate.

•Check your credit card bills to see what interest rate you are being charged and how much the debt is costing you each month in dollars and cents. Options for lowering credit card costs include negotiating for a lower rate or paying off the debt with available assets or with proceeds from another loan, such as a home equity loan, a lower-interest credit card, or even a loan from family members.

•Home mortgage. If you have a fixed mortgage, you can sit tight and keep making your regular mortgage payments. Although accelerating payments to pay off the mortgage faster may fit with your personal financial goals, this is generally a declining-rate strategy, not one undertaken in anticipation of rising rates.

•If you have an adjustable-rate mortgage (ARM), on the other hand, you have a decision to make: Should you switch to a fixed-rate mortgage before rates go higher, or stick with their ARM (depending on what the spread is)? The ARM can be a better deal if you don’t plan to stay in the home for more than a few years.

•Home equity loans and lines of credit. Here you’re dealing with the fixed vs. adjustable question again. If you have a fixed-rate home equity loan you can sit tight. If you have small, short-term loans or lines of credit tied to the prime rate, you may want to lock in a fixed-rate loan before rates go much higher or you plan to pay off the loan fairly soon.

•Auto loans and leases. According to Bankrate, auto loans typically reflect rate increases before the Fed’s move, responding to yields on Treasury securities. If you are thinking of buying a car, you may want to do it when financing incentives offered by dealers are most attractive.

•401(k) loans. Rates on 401(k) loans are usually tied to the prime rate, so it is not possible to lock in a rate on these loans. Better to pay them off, perhaps taking out a fixed-rate home equity loan to do so.

Asset management

Savers typically rejoice at the prospect of rising interest rates, but use caution if you are thinking of locking in higher yields while rates are still rising.

Ladder maturities.

Laddering CDs or short-term fixed-income securities is a classic strategy when rates are in flux and you don’t want to commit too much of your portfolio to one particular scenario. If rates jump, you’ve always got something coming due that can be reinvested at the higher rate. When rates are rising, you want to keep the ladder fairly short—say, up to three years—gradually lengthening the ladder as rates continue to rise.

Special situation

Believe it or not, some bonds hold their value when interest rates go up. This can happen when something other than interest rates exerts a greater influence on the bond’s price, such as when a bond’s credit quality improves.

By searching out special situations (or finding professional money managers who have the time and resources to thoroughly analyze the bond market), you may be able to achieve long-term yields with minimal interest-rate risk, but since this strategy involves buying bonds of lower quality in the hope that the fortunes of the issuer improve, there’s still a good deal of risk involved. Definitely discuss a special situations strategy with an investment professional.

Estate planning

Certain estate planning strategies are worth more if they are implemented when rates are low and the strategies are appropriate for your situation. It is also a good idea to check with your financial advisor before making any irrevocable decisions:

  • Grantor-retained annuity trust (GRAT). A GRAT is used to shift assets to family members before they appreciate in value. The grantor places assets in trust and receives a portion of the assets each year in the form of an annuity. A gift tax is triggered at the time the assets are transferred into the trust, with the value of the gift being the fair market value of the assets minus the grantor’s retained interest, which is the present value of all of the annuity payments over the term of the trust.
  • Both the annuity payments and the present-value calculation are tied to the 7520 rate, which changes every month based on Treasury bond yields. The lower the 7520 rate, the less income the grantor is forced to accept, which means more assets remain in the trust for heirs.

Also, the lower the initial interest rate when the present value of the income stream is established, the higher the grantor’s retained interest will be, thus lowering the value of the gift for gift-tax purposes.

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The Strange and Wonderful World of American Taxes

The Strange and Wonderful World of American Taxes

The Tax Cuts and Jobs Act of 2017 is only the latest in a long and controversial history of taxation in the U.S. As you can imagine, no one has ever been gleeful about handing over money to the government. And so the debates continue to rage. As you celebrate the end of another tax season, here is a lighthearted look at this quintessential government function.

Taxes have caused a ruckus in North America longer than the United States itself has existed. They date to the colonial era, when Britain imposed tariffs on various goods as a way to raise revenue for the imperial power. While the actual rates were low, most colonists rebelled against the idea that Britain had the right to impose taxes on Americans when they were not represented in Parliament—the infamous “taxation without representation” that sparked a revolution. Famously, in 1773 the Sons of Liberty protested the Tea Act of 1773 by destroying an entire shipment of tea by throwing it overboard, in what came to be known as the Boston Tea Party.

This was but one in a series of incidents that eventually led to the American Revolution, and eventual formation of the United States of America in 1776. However, even democratic governments need funding, so taxes continued. Tariffs on goods continued to be the main source of state and federal revenue until the early 20 century. And people continued to be upset about it.

The first tax on a domestic product (distilled spirits) was imposed in 1791 to recoup losses from the Revolutionary War. Distilled spirits were a crucial source of income for certain rural farmers, because they were easier to transport than grain. Resentment came to a head in the 1794 Whiskey Rebellion, which required an army of 13,000 to suppress the insurgents. Income taxes got their start in 1861 as an effort to pay for the Civil War. However, constitutionality was in question and the law was repealed 10 years later. It was not until 1913 that the 16 Amendment passed, stating that “The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.”

The income tax of 1913 levied a 1% tax on net personal incomes above $3,000, with a 6% surtax on incomes above $500,000. By 1918, the top rate of the income tax was increased to 77% (on income over $1,000,000)—this time to finance World War I. The top marginal tax rate was reduced to 58% in 1922, to 25% in 1925, and finally to 24% in 1929. In 1932, the top marginal tax rate was increased to 63% during the Great Depression and then it steadily decreased. Taxes as we know them continued to develop throughout the 20 century. Reagan’s tax act in 1981 was considered historic for lowering all individual tax brackets by 25%. However, Clinton’s act of 1993 saw taxes raise again. Then, in 2001 George W. Bush reduced tax rates but continued to increase tax credits. And, as you know, in 2017 Trump signed an act eliminating many itemized deductions but increasing the standard deduction, and adjusting tax brackets. How many pages is the tax code, really? A quick Google search will find several articles stating that the tax code stands at a whopping 70,000 pages.

Explaining the bloat, The Washington Examiner writes: Amazingly, in the first 26 years of the federal income tax, the tax code only grew from 400 to 504 pages. Even through President Franklin Roosevelt’s New Deal, the tax code was well under 1,000 pages. Changes during World War II made the length of the tax code balloon to 8,200 pages. Most of the growth in the tax code came in the past 30 years, growing from 26,300 pages in 1984 to nearly three times that length today. If the tax code continues to grow at the same pace it did over the last century, it will pass 100,000 pages in 2050. However, tax attorney Andrew Grossman dismisses this number as a myth. The figure traces back to the Tax Foundation, which cites the pages in the CCH Standard Federal Tax Reporter. What this actually means requires explanation for the average Joe.

The Reporter contains not just the actual tax code, but a compilation of resources for tax lawyers and accountants, including legislative history, Treasury regulations, editorial comments, and court cases on relevant topics. So there is in fact no way to reduce the 70,000 page count, no matter what any politician says. As soon as you make any changes to the tax code, they will be added to the Reporter, in addition to more case studies and commentaries. So how long is the actual tax code itself? According to Vox, the last page of the 2016 version of the Internal Revenue Code numbered 4,132 pages. But the page numbers jump from 527 to 1,001 (no one seems to know why) and the code includes all past tax statutes, not just current laws. They conclude that the current code is only around 2,600 pages. Still a little heavy for bedtime reading. I’m being taxed on what?! As we close, here are some strange but true state taxes that you probably didn’t even realize you were paying, courtesy of efile. New York City places a special tax on prepared foods, so sliced bagels are taxed once as food and again as prepared food, thus creating a sliced bagel tax.

In 2005, Tennessee began requiring drug dealers to anonymously pay taxes on any illegal substances they sold. States like Iowa, Pennsylvania, and New Jersey exempt pumpkins from a sales tax, but only if they will be eaten and not carved. In California, fresh fruit bought through a vending machine is subject to a 33% tax! In Texas, Christmas tree decoration services are subject to a tax only if the decorator provides the decorations and ornaments. In addition, there is a tax on holiday-themed pictures that are meant to be placed on windows. In the state of Kansas, untethered hot air balloon rides are exempt from sales tax because they are considered a legitimate form or air transportation. Tethered hot air balloon rides, on the other hand, are considered to be an amusement ride and therefore are subject to sales tax.

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