Big tax surprise looming for high earners

 Published: Thursday, 26 Dec 2013 | 11:52 AM ET

 

By: Jeff Morganteen | Producer, CNBC.com

Tax shock for high earners looms

Thursday, 26 Dec 2013 | 10:29 AM ET

Joseph Perry, Marcum Partner, explains why high income earners are in for a big tax shock this year and shares how effective tax planning can help ease the tax bill.

 

Attention high-income earners: Be prepared to pay more in this year's tax bills.
How much more? That depends on your income, deductions and exemptions, but according to Joe Perry, a partner overseeing tax and business services at Marcum, about 1,200 of his clients earning more than $400,000 will see their 2013 tax bills grow by an average of 7 percent compared to 2012. The changes amounted to a total of $250 million more in taxes this year, he told CNBC on Thursday.
"People are aware of the changes, but I don't think they are prepared for the changes," Perry said on "Squawk on the Street." 

(Read more: Five tips for year-end tax planning)

Clint Hild | E+ | Getty Images

 

After President George W. Bush's tax cuts for the highest income bracket expired earlier this year, married couples filing jointly with income greater than $450,000 face a 39.6-percent income tax—up from 35—plus a 20 percent tax on qualified dividend and long-term capital gains, up from 15 percent. The new tax rules also limited the kind of deductions joint filers earning more than $300,000 could file.

"You have to plan for a two-year period," Perry said. "You can't just look at one year. You want to understand where you're going to be in 2013 and 2014. Then when you look at the years you want to see if you're coming up on any of the thresholds."

Perry said high-income earners should think about gifting appreciated assets to take advantage of generous deductions.


—By CNBC's Jeff Morganteen. Follow him on Twitter at

@jmorganteen

and get the latest stories from "Squawk on the Street." 

CNBC Video of Article: http://www.cnbc.com/id/101297236

Federal workers' pensions targeted in budget deal

Distinctly unpopular among voters and a scant presence in most congressional districts, federal workers have become an easy target in the hunt for budget savings.
Their retirement programs are notably generous compared to the norm in private industry. But for federal workers hired after 2012, the pension program is turning less generous.
Most federal civilian employees hired beginning in January will contribute 4.4 percent of their pay to their pension plans under the House-passed budget bill the Senate is expected to approve this week. Government workers hired in 2013 will continue paying 3.1 percent of their gross pay to help cover their pensions; those on the federal payroll before then, 0.8 percent.

"It's insane they should be expected to fund government," said Jackie Simon, policy director for the American Federation for Government Employees, the union representing 630,000 federal workers. "It's a big country. The burden should be spread more broadly."

Deal not done: Senate needs to pass budget deal

 

CNBC's John Harwood reports that the Senate will vote on the budget compromise before the end of the week, but the deal is not done yet.

But with pensions for nongovernment workers on a path toward extinction, federal employees get little sympathy from some experts.
"Their private sector counterparts would be jealous of the benefits they're maintaining," said John Ehrhardt, a principal at the actuarial and consulting firm Milliman.
While 38 percent of private industry workers received pensions in 1979, just 14 percent did so in 2011, the most recent figures from the Employee Benefit Research Institute, which advocates for benefit programs.

Besides retaining their pensions, most federal workers also can contribute to a 401(k)-like savings program, the Thrift Savings Plan.
That combination is far better than what's available to most private industry workers. In 2011, only 11 percent of employees in the private sector had both savings plans and monthly pension payments, according to the research institute.

For federal workers, the government matches up to the first 5 percent of employees' contributions to their retirement savings.
Only about 4 in 10 companies offer retirement savings plans, a number that's been growing. The most common practice is for employers to match half what workers contribute up to the first 6 percent of pay, according to an industry survey.
Federal workers and their supporters argue that their pensions can't be considered in a vacuum.

Democrats to have worst year of their life: Pro

Discussing the budget deal in Washington, with Democratic strategist Jimmy Williams; Republican pollster Jim McLaughlin; and WOR radio talk show host Mark Simone

The 2.2 million federal civilian employees have had their pay frozen for the past three years. In addition, most were furloughed for at least a day without pay this year, thanks to the automatic spending cuts triggered by the two parties' budget standoff.
Federal workers aren't the only public employees facing growing pension expenses. Such plans remain common for many state and local workers, and 30 states imposed higher pension costs on their employees between 2009 and 2012, according to a National Conference of State Legislatures survey.

Such plans — called defined benefits because employers must spend whatever is needed to fully finance them — have been fading in the private sector for decades, as companies shed those expenses. Many firms have shifted to savings plans to which they make a defined contribution, making workers face the risk if investments go bad.

Federal workers "have to be careful about crying foul over something for which the other solution would be to eliminate it," said Lynn Dudley, senior policy vice president for the American Benefits Council, representing big companies that provide retirement benefits.

Most federal workers hired before 1984 are covered by the older Civil Service Retirement System. They contribute 7 percent of their earnings for their pensions but are not covered by Social Security — thus avoiding the 6.2 percent Social Security payroll tax other workers pay.
When Congress strengthened Social Security's finances in 1983, it put federal workers hired starting in 1984 under a new Federal Employees' Retirement System. They contribute 0.8 percent of their pay to their pensions, but also pay Social Security taxes.

In 2012, that pension contribution was raised to 3.1 percent. Earlier this year, federal workers' retirement costs seemed on track for deeper increases than those the budget deal would impose.
The Republican-run House approved a budget deducting 6.35 percent from all federal workers' paychecks, not just new hires, to help cover their pensions, saving the government $130 billion over a decade.

President Barack Obama earlier this year proposed saving $20 billion by gradually raising their pension contributions by 1.2 percent.
Rep. Chris Van Hollen of Maryland, top Democrat on the House Budget Committee, said he signed off on the $6 billion increase for new federal employees hired beginning in January after Obama assured him he would propose no new retirement benefit cuts in next year's budget.
Van Hollen, whose district has many federal workers, said Obama made that commitment by phone last week as Air Force One refueled on its way to ceremonies for the late South African leader Nelson Mandela.

—By The Associated Press.

Mediocre test scores at a pretty steep price

  

 Published: Saturday, 7 Dec 2013 | 7:00 AM ET

By: Allen Wastler | Managing Editor, CNBC.com

Well, the results are in and, guess there's no other way to put this: We stink. Well, maybe not so much stink as just we're really, really so-so. And our mediocrity costs a lot.

I'm talking about the latest round of testing 15-year-old students worldwide. The best the United States could do was place 17^th in reading. In math we were 26^th and in science we were 21^st. In fact, the U.S. scored at or just below average in each category, so figure a C minus overall. China and other Asian nations took most of the top spots. Finland, a past champ, dropped a few rankings.
Now there's a lot of debate about this so-called PISA exam. The questions are fairly straightforward. Give this one in the box a try. The answer is at the bottom. If you want more sample questions, go here.

But some argue the test, administered by the Euro-centric OECD in 65 countries or "economies", doesn't check out a valid sample of U.S. students. Others argue that China stacks the deck, only offering up its best urban students and none from the hinterland.

Whatever. If the U.S. slammed the ball out of the park in the first place no one would be debating ground-rule doubles.
Besides our national pride taking a hit (imagine if these were Olympic results?!), this is a money issue: We're wasting it.

We spend about $115,000 in total educating a kid, according to the OECD, more than most countries. Yet this is the best we can do?
If you look at bang-for-the-buck among various selected countries, shown here in two graphs (total education cost per student and the result on the math portion of the PISA test), you see the U.S. isn't doing so great (although Luxembourg may have a bigger gripe).

Japan spends less than the US per student, the equivalent of about $89,000, yet performs much better. Same story with our neighbor to the north.
Just to rub it in, the OECD made it a point to note that the Slovak Republic spends less than half as much as the U.S. yet scores on a par with the United States. Also important to note: China's education costs apparently couldn't be obtained by the OECD. And the scores and rankings of some countries, including the U.S., could be affected by sampling errors, the OECD cautioned.
Nevertheless, the numbers tell a pretty unprofitable tale. The U.S. currently spends close to $1 trillion a year on education. Yet the country's performance in the worldwide PISA test, administered every three years since 2000, has remained static.

"One word describes the U.S. performance: Embarrassing," said Gary Beach, editor emeritus of CIO Magazine and author of "The U.S. Job Skills Gap", in an email exchange. "Equate the 10 years of PISA scores (back to 2000) as end of year earnings results for a corporation that spent $5 trillion but had not made one cent of profit...or actually produced a loss. What would happen? The board would fire the entire management team by the 10th year."


Then there's the broader job picture. Employers complain they can't find workers with the education and skills necessary to fill certain jobs and so have to look abroad.

"The US continues to have a shortage of IT workers for the positions available in the US," lamented Jack Cullen, president of Modis IT Staffing, in an email response. "While there may be less of a shift to send more jobs off shore, we have fallen behind in getting enough students to pursue IT related degrees. ...I am not surprised by the (PISA) results. The U.S. educational system is in catch-up mode to countries like China, Japan, and India to name just a few."
Others have countered that employers just want cheap foreign labor. If employers offered higher rates of pay, then more people would be interested in pursing those careers.
Hard to imagine, though, that factoring into a 15-year-old's thinking, much less his or her test score. And regardless, if that cheap foreign labor is actually smarter, the decision is kind of a no brainer, right?

Oh yeah, the answer is 11 a.m.
(This paragraph is for the copy editors who will go nuts that I never spelled out the acronyms: OECD stands for the 34-member Organization for Economic Cooperation and Development and PISA stands for Program for International Student Assessment. Putting either of those in the regular copy would have been truly cumbersome).
—Allen Wastler is managing editor of CNBC Digital. Follow him on Twitter

@AWastler

. You can catch his commentary here and on CNBC Radio. And check out his fiction.

Why traditional diversification is ‘downright dangerous’

   

 Published: Tuesday, 26 Nov 2013 | 9:00 AM ET

 

By: Elizabeth MacBride, Special to CNBC.com

One investing rule doesn't fit all

 

Tuesday, 26 Nov 2013 | 4:00 PM ET 

 

CNBC's Sharon Epperson says no one should blindly stick to the traditional investment allocation of 60 percent stocks and 40 percent bonds.

 

For nearly 70 years, many investors and investment advisors used a basic formula to guide them in creating diversified portfolios: the 60/40 (60 percent/40 percent) stock/bond split.
The strategy worked well: It returned 10 percent a year from 1990–2011.

The question now—as the number of asset classes and strategies available cheaply to investors proliferates, and the risk of holding U.S. bonds rises—is whether the classic 60/40 portfolio split has outlived its investment usefulness and, if so, what should replace it?

For all practical purposes, the short answer is yes, according to Burt Malkiel, Wealthfront chief investment officer, Princeton professor and author of the investment classic, "A Random Walk Down Wall Street," a book that helped launch the low-cost index-investing revolution.

Leland Bobbe | Image Bank | Getty Images

 

Malkiel recently told CNBC that the 60/40 rule was an oversimplification from the beginning. Now he thinks it is downright dangerous. "The investor in bonds is, I think, very likely to get badly hurt by sticking with the 60/40."

Malkiel has a new recommendation for investors, but it is not as appealingly simple as the 60/40 split. Too bad, he said. "I never have liked any kind of norm."


Weaning people off the 60/40 concept is a challenge, however, precisely because it has worked in the past.

Andrew Ang, the Ann F. Kaplan Professor of Business at Columbia Business School, called the 60/40 rule a shorthand for the concept of diversification. It has been embedded in the investing mind-set since 1952, when Harry Markowitz introduced Modern Portfolio Theory. But in the '50s, there were only two asset classes available cheaply—stocks and bonds, Ang said.

A random walk down dead ends in diversification

Why 60/40 came to be the norm rather than some other ratio is anybody's guess. Humans seem intuitively drawn to two-thirds, which is also used to represent balance in art and politics. "You'll get similar results doing 50/50 or even 70/30," said Ang, who, like Malkiel, believes that the plain vanilla portfolio is dead in an increasingly complex world.

Any norm at all ignores another fundamental investing precept—that your allocation needs to change to suit your personality and stage of life—a more important concept now than 70 years ago, because people live longer and plan their own retirements.



Investors who let go of oversimplification and embrace a slightly more complex but still low-cost portfolio will be better prepared to meet changes in their lives and the economy, Malkiel said.
(The following is an edited version of an interview CNBC recently conducted with the investing guru on the topic of portfolio diversification.)

"I never have liked any kind of norm. ... The investor in bonds is, I think, very likely to get badly hurt by sticking with the 60/40."

Burt Malkiel

Wealthfront chief investor officer, Princeton professor and author of "A Random Walk Down Wall Street"

CNBC: Why did we ever get the 60/40 in the first place?
 
Malkiel: I don't know. And I don't like any kind of norm, because it depends on so many factors—and your personality.

The correct allocation ought to depend on individual circumstances. It is definitely not the right kind of thing for everybody. What I had in my "Random Walk" for the last several editions is a quite different allocation. You should have more equity orientation. Another rule of thumb: Jack Bogle has often said bonds should be a percentage equal to your age. I don't agree with that, either.
I think that allocation is particularly wrong today because we are in an age of financial repression. ... Europe and Japan are having trouble reining in budget deficits, and we have high debt in the U.S., too. (The governments) are deliberately keeping interest rates down. Even a U.S. bond index fund is not the right thing to do, because BND [Vanguard Total Bond Market ETF] is about two-thirds government or agency bonds.
The investor in bonds is, I think, very likely to get badly hurt by sticking with the 60/40.

Jack Bogle, The Vanguard Group, explains why the index over the actively managed fund is a better option for investors.

CNBC: In the recent editions of "Random Walk," you suggested the following portfolio for an investor in his or her 50s—with each asset class represented by a low-cost fund—and for the percentage allocated to equities to be larger, depending on the age and risk tolerance of the investor:

• Cash: 5 percent
• Bonds: 27.5 percent
• REITs: 12.5 percent
• Stocks: 55 percent

How would you update that portfolio?

Malkiel: The recent editions were written when bonds had a generous yield. Today BND yields are about 2.4 percent. That is why we suggest the bond (safer) part of the portfolio be fine-tuned. We ... use high-quality dividend growth stocks for a part of what otherwise would be a straight bond portfolio. Also, we use some foreign bonds where debt/GDP is low and yields are relatively high.
The updated portfolio for an investor in his or her 50s would look like:

• Cash: 5 percent
• Dividend growth stocks, emerging market bonds and tax-exempt bonds: 27.5 percent
• REITs: 12.5 percent
• Stocks: 55 percent

You use that as a starting point and move allocations up or down, depending on your age.

CNBC: Is the definition of diversification changing?

Malkiel: There are so many more asset classes now. It's not that we want to say absolutely never any bonds.

CNBC: How has your view of asset allocation changed over the years?

Malkiel: I'm more open to the idea that you need stability. You may not, as an individual, just be psychologically able to stand the amount of volatility that equities have. You want a little more stability. ... I can understand that. It depends on your ability to not go crazy and sell at the wrong time when the equities drop, as they do.

I'd like to broaden the definition of how you get the stability. It's just saying ... in today's world, bonds as the only possibility to add stability to a portfolio is a much too narrow way to look at it, and a suboptimal way.

We're talking about a broader definition of diversification. There are some financial advisors using this window to broaden it to include a lot of alternative asset classes, like gold.
Some are even suggesting hedge funds. I believe in wider diversification, but for me wider diversification would be to look at some emerging markets that are very unpopular. Or REITs. Real estate is a hard asset, good when inflation is low.
Something like a hedge fund that charges 2.20 percent is a sure loser.
I'm not a big fan of gold. People say it's a hedge against Armageddon. If the world disappears, your asset allocation will be the least of your concerns.

CNBC: What are the criteria you use to judge an asset class?

Malkiel: You want to control the things you can control. Worry very much about the costs you pay. All of us who deal with the stock market need to be very modest about our ability to make money. But the one thing is certain: The lower the fee I pay ... the more there will be for other investments. Worry about taxes on an asset class, fees, and you do want to be diversified. It's a totally reasonable thing to want stability, but it is not clear to me that that means bonds—or U.S. bonds, specifically.
—By Elizabeth MacBride, Special to CNBC.com

The Fed's 'hidden agenda' behind money-printing

 Published: Wednesday, 25 Sep 2013 | 12:04 PM ET

By: Peter J. Tanous

Getty Images

 

The markets were surprised when the Federal Reserve did not announce a tapering of the quantitative easing bond buying program at its September meeting. Indeed, its signal to the market that it was keeping interest rates low was welcome, but there may be a hidden agenda.
Since it began in late 2008, QE has spurred a vigorous debate about its merits, both positive and negative.

On the positive side, the easy money and low interest rates resulting from quantitative easing have been a shot in the arm to the economy, fueling the stock market and helping the housing recovery. On the negative side, The Fed accomplished QE by "printing money" to buy Treasurys, and through the massive power of its purchases drove interest rates to record lows.
But in the process, the Fed accumulated an unprecedented balance sheet of more than $3.6 trillion which needs to go somewhere, someday.
But we know all this.

I believe that one of the most important reasons the Fed is determined to keep interest rates low is one that is rarely talked about, and which comprises a dark economic foreboding that should frighten us all.

Gartman: Leave tapering to next Fed group

The economy is stronger than it looks, said Dennis Gartman, The Gartman Letter, sharing his outlook on gold, the next Fed chairman and the fate of Treasury rates.

  Let me start with a question: How would you feel if you knew that almost all of the money you pay in personal income tax went to pay just one bill, the interest on the debt? Chances are, you and millions of Americans would find that completely unacceptable and indeed they should.
But that is where we may be heading.


Thanks to the Fed, the interest rate paid on our national debt is at an historic low of 2.4 percent, according to the Congressional Budget Office.
Given the U.S.'s huge accumulated deficit, this low interest rate is important to keep debt servicing costs down.

But isn't it fair to ask what the interest cost of our debt would be if interest rates returned to a more normal level? What's a normal level? How about the average interest rate the Treasury paid on U.S. debt over the last 20 years?
(
That rate is 5.7percent, not extravagantly high at all by historic standards.
So here's where it gets scary: U.S. debt held by the public today is about $12 trillion. The budget deficit projections are going down, true, but the United States is still incurring an annual budget deficit by spending more than we take in in taxes and revenue.
The CBO estimates that by 2020 total debt held by the public will be $16.6 trillion as a result of the rising accumulated debt.

Do the math: If we were to pay an average interest rate on our debt of 5.7 percent, rather than the 2.4 percent we pay today, in 2020 our debt service cost will be about $930 billion.
Now compare that to the amount the Internal Revenue Service collects from us in personal income taxes.

In 2012, that amount was $1.1 trillion, meaning that if interest rates went back to a more normal level of, say, 5.7 percent, 85 percent of all personal income taxes collected would go to servicing the debt. No wonder the Fed is worried.
Some economists will also suggest that interest rates may go much higher than 5.7 percent largely as a result of the massive QE exercise of printing money at an unprecedented rate. We just don't know what the effect of all this will be but many economists warn that it can only result in inflation down the road.

As of today, interest rates are rising, and if this is a turning point, it is a major one.
Rates in the U.S. peaked in 1980 (remember the 14 percent Treasury bonds?) so if we are at the point of reversing a 33-year downward trend, who wants to predict how this will affect the economy?
One thing is clear: Based on CBO projections, if interest rates just rise to their 20-year average, we will have an untenable, unacceptable interest rate bill whose beneficiaries are China, Japan, and others who own our bonds.

And if Americans find out that the lion's share of their income tax payments are going to service the debt, prepare for a new American revolution.


Peter J. Tanous is president of Lepercq Lynx Investment Advisory in Washington D.C. He is the co-author (with Arthur Laffer and Stephen Moore) of The End of Prosperity (2008), and co-author (with CNBC.com's Jeff Cox) of Debt, Deficits, and the Demise of the American Economy (2011).

Six feet under as a retirement plan?

You've heard the story about America's retirement crisis.

Young people don't save enough. Older people have to work longer. Public pension benefits are always on the verge of being slashed, and Social Security's future is anyone's guess. No one trusts the stock market, but keeping assets in a savings account generates the same return as keeping them under a mattress.

The retirement picture is alarming at best. And now it has come to this: In its annual retirement study of middle-income Americans (income of $25,000 to $100,000), Wells Fargo asked participants if they expect to work until they die.

Lynn Koenig | Flickr | Getty Images

 

"This is the first time we asked if people thought they would work until they die or become too sick," said Laurie Nordquist, head of Wells Fargo Institutional Retirement and Trust. Thirty-seven percent of middle-income Americans surveyed by Wells Fargo said they have that expectation. The finding translates to just under two in five Americans who believe they will never be able to retire.
Wells included the question based on a larger trend exposed when participants have been asked how many expect to work until they are at least 80. That number was at 34 percent in this year's survey, a significant rise from 25 percent two years ago. It's been on a steady rise, too, up from 30 percent in 2012.

If 80 is the new 60, as a recent UBS "Investor Watch" report proclaimed, it's looking like six feet under is the new 65 for a significant percentage of Americans.

 

The underlying trends in Wells Fargo survey are just as distressing, if not surprising.
"What we heard is that paying day-to-day bills trumps planning for retirement," Nordquist said. "Day-to-day bills are really overwhelming them."

Fifty-nine percent said their top financial concern is everyday bills, and 42 percent told Wells that it is not possible to both pay them and save for retirement.
"As much as we read about the economy turning around, people in middle-class America are not feeling it yet," Nordquist said.



Even for those with assets to invest for retirement, lack of a plan and lack of confidence in the stock market hold them back from building a nest egg.
Only 30 percent have a retirement plan. The benefit of having a strategy is huge: Wells Fargo found that those with a plan have saved three times as much toward their retirement goal as those without one.

"That's really amazing, and it makes a really big difference, whether your income is $25,000 or $100,000," Nordquist said. "The plan doesn't need to be elaborate."
Yet the survey found that 75 percent of middle-income Americans said they are not confident that stock market is a good place to save for retirement. That finding holds true for both young and old.


In fact, respondents in their 20s are the least sure, with 80 percent saying they are not confident about investing in the market.
"They have the long runway and should be taking advantage of appreciation," Nordquist said. Yet when Wells Fargo asked what they would do if given $5,000 to invest, most said they would put it in a savings account.

One of the survey's more encouraging findings was that only 7 percent of Americans "strongly agree" that gambling in Las Vegas is as good an idea as investing in the stock market, but that's little solace (and 27 percent of Americans surveyed generally agreed with the statement).
Starting early and having a plan are the most important steps, Nordquist said.
"Those two have a lot more to do with what you end up with than the amount, even if you're saving at a 6 percent to 10 percent level," Nordquist said. "When you're young but not in the market, you won't build the nest egg."


People in their 30s were the most likely to have a retirement plan in place, but 45 percent of respondents said they have so few assets there is no reason for them to have a plan, while another 25 percent said they don't know how to create one.
"The ones without a plan we worry about," Nordquist said.
Their plan could become to work until they drop.

—By Eric Rosenbaum, CNBC.com, and Anthony Volastro, CNBC Segment Producer

Oil constrained by high supply, weaker US growth

 Published: Monday, 21 Oct 2013 | 9:52 AM ET

 

By: Sri Jegarajah | Senior Correspondent, CNBC Asia Pacific

Henrik Jonsson | E+ | Getty Images

 

Benchmark U.S. crude prices may dip further below $100 a barrel this week, reflecting favorable supply dynamics and weaker growth prospects in the U.S., according to CNBC's latest market survey of traders, analysts and strategists.
Almost three-quarters of the respondents in CNBC's latest poll of oil market sentiment (18 out of 25) believe prices will fall this week, 20 percent (5 out 25) expect gains and 8 percent (2 out of 25) are neutral.

U.S. crude fell below $100 per barrel on Monday amid pressure from strong supplies, but losses were limited by hopes the U.S. Federal Reserve will delay curbing its money printing program until next year, helping shore up the demand outlook, Reuters reported.


Strategists said U.S. crude futures' breach of the triple-digit level, for the first time since July 3, paved the way for a further slide. "$100 U.S. oil is key," said Jonathan Barratt, chief executive officer of Sydney-based commodity research firm Barratt's Bulletin, targeting next key support levels at $97 and then $85.

A sub-par September U.S. jobs report on Tuesday may provide the catalyst for further oil price weakness, said Carl Larry, president of Houston-based consultancy Oil Outlooks and Opinions. He added that last week's jobless claims numbers could bode ill for this week's closely watched non-farm payrolls.

Initial claims for state unemployment benefits fell 15,000 to a seasonally adjusted 358,000, the Labor Department said last Thursday, slipping from a six-month high the prior week. But the figure was still elevated, as California battled with a backlog related to computer problems. Economists polled by Reuters had expected first-time applications to fall further, to 335,000.

"It's not 'the economy stupid', it's the stupid economy," Larry said. The latest jobless claims data "Is not a good sign for the U.S. recovery and even worse for the outlook for demand...we may see the same repeated when we see the unemployment numbers," he continued.


A perceived drop in in the political temperature in the Middle East, combined with improved supply fundamentals in the U.S., will still keep prices in check, strategists and traders added.
"High over-supplies (despite a strong drop in OPEC exports) and improving geo-political climate are likely to take their toll," said Commerzbank's head of commodity research, Eugen Weinberg.
Analysts who examined technical indicators also forecasted tamer price action.

"It is looking toppy on the charts," said Tom James, director and co-founder of Navitas Resources. "Charts and fundamentals are looking for a softer market. Brent crude has been trading between the top of the Bollinger band, and has key support at $106. We're not expecting a drop below that, but the market will struggle to move higher."

Saxo Bank's Ole Hansen added that brent crude "looks like it could have another leg down towards $105, from where support should be re-established".

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Happy birthday income tax, you're 100 years old (ouch!)

 Published: Friday, 4 Oct 2013 | 9:09 AM ET

By: Mark Koba | Senior Editor, CNBC

Tetra Images | Getty Images

 

It's doubtful most people will notice, let alone celebrate, Friday's 100th anniversary of the U.S. income tax code. But, yes taxpayers, Oct. 4, 2013, is the centennial.
So, happy birthday income tax?

"Obviously, it depends on your perspective," said Ajay Mehrotra, a history professor at Indiana University.
"But there's one thing we can take from the period of time when the tax law passed," he said. "And that is lawmakers got together and realized some permanent form of taxation was needed instead of having a political stalemate that got nowhere."
One expert sees the 100 years as a system run amok.

"In 1913, the tax code consisted of 400 pages," said Timothy Nash, a professor of free market economics at Northwood University.
"By 2012, the tax code was 73,608 pages," he said. "We have gone from a simple tax system to a complex, unfriendly system."

Taxed from the very beginning

Now is the time to start tax planning

 

CNBC's Sharon Epperson gets year-end tax planning advice from three leading financial advisors.

It was the 16th Amendment, adopted in February 1913, that gave Congress the legal right to levy an income tax. On the evening of Oct. 3, President Woodrow Wilson signed the Revenue Act of 1913 that allowed the collection of a federal income tax—starting the next day.

But having some sort of taxation goes back to the country's beginning. From 1791 to 1802, the government was supported by tax revenue from the sale of such items as liquor, tobacco, sugar, property sold at auction and even through the sale of slaves.

The high cost of the War of 1812 saw the first sales tax on gold, silverware, jewelry and watches. But by 1817, Congress eliminated all taxes and relied on tariffs from imported goods for revenues.
It was in 1862, to fund the Civil War, that Congress enacted the first income tax. Anyone making between $300 to $10,000 a year paid a rate of 3 percent. That tax ended soon after the war.
Congress also established the Internal Revenue Service at the same time, which had much the same power and authority then as it does now.

Jumping to 1894, Congress passed the first peacetime income tax law, but a year later the Supreme Court declared it unconstitutional. The court said that taxes on rents and real estate income had to be divided among the states according to population, which the law did not allow.
But the court did make a crucial statement in its ruling. It said that Congress had the right to impose a direct income tax—and that led to the passage of the 16th Amendment.

People haven't always hated taxes

IRS Scandal: Lois Lerner retires

 

The IRS official at the center of the Tea Party scandal is retiring. Discussing what Lerner's retirement announcement means for the investigation, with Eliana Johnson, National Review.

As for most people's seemingly contentious relationship with the taxman, Mehrotra said it wasn't always that way.
"It's a popular perception that Americans hate taxes, but that hasn't been the case until recently," he said.

"Taxes in the post-World War II era were very high at a 70 to 80 percent rate in some cases, and people were more or less willing to pay them," he said.
"But our overall prosperity started to decline in the 1960s and '70s, and people wanted to start paying less in taxes," he said.



"We've had a real transformation of the economy and a loss of faith in the public sector over the years with Watergate, the Vietnam War, so people aren't as supportive of the government and what it does as they used to be," said Mehrotra.

Tax reform unlikely

Are tax exempt Muni's now attractive?

 

Shelley Bergman, Morgan Stanley Wealth Management, explains why he thinks the municipal bond market is a "standout" right now and offers investors a buying opportunity.

The tax system has seen its share of changes over the years. In 1943, the withholding tax on wages was introduced for the first time. In 1981, Congress passed the largest tax cut in American history, some $750 billion in cuts over six years. That was partially offset in 1982 and 1984 when Congress raised taxes to the tune of $265 billion.

The Tax Reform Act of 1986 is considered the biggest reform measure since 1913. The top tax rate on individual income was lowered from 50 percent to 28 percent, the lowest it had been since 1916.
But along with the lower rate came the elimination of certain loopholes to make up the lost revenue. And the act put in a $120 billion increase in business taxes.

President George W. Bush signed several tax cuts into law in 2001 for the third-largest tax cut since World War II. President Barack Obama's tax bill for 2013 kept some of the Bush tax cuts for lower incomes but raised levels for higher incomes, which had been reduced under Bush.
Among other moves, Obama restored the full amount of the payroll tax (6.3 percent) and raised the rates on capital gains and included a 3.8 percent surtax on incomes of $200,000 or more for single people to help fund the Affordable Care Act. The dreaded alternative minimum tax (AMT) received a permanent patch to try to keep thousands from having to pay it.

(Read more: After recession, few Americans expect to inherit money)

Calls for tax reform have led to recent hearings on Capitol Hill. Suggestions include going to a flat tax and eliminating deductions like mortgage interest and charitable giving.
"We need a national sales tax or flat rate tax," said Nash. "Both would reduce the complexity and burden of our current system with a fair tax and the opportunity to abolish the IRS."
"It all depends on what you call fair," said Mehrotra, who also supports a national sales tax. "Medicare and Social Security aren't going away, so we need to fund them."
"We need taxation for progressive spending, but one thing that would be helpful is if we stopped trying to run every social policy through the IRS," he added.
"But getting tax reform done won't be easy," he added. "Everyone has a special interest they want to protect."

Hot button issue

Taxes are always a hot button issue. Depending on whose study you look at—or your political persuasion—the U.S. is either the most overtaxed nation on the planet, the least taxed (especially for the wealthy), or it's somewhere in the middle, as some have said.
Wherever it is, taxes are money for government services, like Social Security. Medicare, defense, federal worker payrolls, veterans' benefits, education and health care.
And the amount needed keeps growing. The Treasury Department will likely collect around $4.9 trillion from income and payroll taxes in 2014. That's a huge jump from the $5.4 billion collected in 1920 and the $43 billion in 1945.
If Americans do circle their calendars for taxes, it's usually April 15, the yearly filing day, not the 100th birthday of the federal income tax.
"One hundred years of what we've had has been plenty and it's high time Congress did something about it," said Nash.

—By CNBC's Mark Koba. Follow him on Twitter

@MarkKobaCNBC

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Five key questions for taxpayers

 Published: Wednesday, 25 Sep 2013 | 9:00 AM ET

 

By: Shelly K. Schwartz, Special to CNBC.com

Daniel Acker | Bloomberg | Getty Images

 

Taxpayers looking to keep more of their money from Uncle Sam this year need to start with a detailed, financial plan.
To that point, anyone who believes they can wait until December to start planning their tax strategy should think again.

Financial advisors stress that now is the time to get serious and that creating a tax planning "to do" list is important. Here are five key questions that taxpayers need to get answers to in order to help them plan their year-end tax strategy.

1. When should I start to plan my year-end tax strategy?
Anywhere from September through November, taxpayers should be thinking about year-end tax planning, financial experts say. It's essential to be able to plan ahead so that you know where you are, tax-wise.

2. What can I do now to lower my current year tax bill?
Taxpayers looking to keep more of their money from Uncle Sam will need to start with a detailed plan. Strategies that work include deferring year-end bonuses until January 2014, delaying the exercise of incentive stock options and postponing receipt of distributions beyond the required minimum from individual retirement accounts.

 

3. Have there been income tax changes that will directly impact me in 2014?

Yes, especially for high-income earners. For 2013, married couples filing jointly with taxable income greater than $450,000 will face a new 39.6 percent top marginal income tax rate, plus a bump to 20 percent, up from 15 percent, on qualified dividend and long-term capital gains. Joint filers earning more than $250,000 will also be subject to a new 3.8 percent Medicare surtax on net investment income.

4. Should I sell underperforming stocks to offset capital gains?

It's a good idea to consult with a financial expert on this subject. Investors can minimize their capital gains tax bite by selling stocks and mutual funds that have lost in value before the end of the year. The Internal Revenue Service allows investors to offset capital gains with capital losses dollar for dollar.

5. What are some tax-break options if I make charitable donations?

Charitable contributions made to qualified organizations may help lower a tax bill. It's key to know which form to file to claim a charitable contribution, or how to itemize deductions. Investors can also donate appreciated property instead of cash to a charity, which yields double the bang for the buck. This occurs because an individual can deduct the property's fair market value on the date it gifts and avoid paying capital gains tax on the appreciation. It is a good idea to speak with a financial professional to help ensure your giving pays off on your return.

—Shelly K. Schwartz, Special to CNBC.com

The money mistakes awaiting college students

 Published: Wednesday, 2 Oct 2013 | 7:03 AM ET

By: Kelley Holland | Special to CNBC 

 

Image Source | Getty Images

 

Sending your baby to college for the first time can be a nerve wracking experience. What if there is too much partying? What if the roommates don't get along? Will the food be all right?
There is another, less visible menace: the financial pitfalls that await college students.
From living on a budget to opening a checking account and planning a trip over spring break, college students are navigating new financial territory. And most college students are ill prepared for the challenge.

"They're in that transition from under Mom and Dad's wing to independence," said Patricia Seaman of the National Endowment for Financial Education.
Seaman should know: Her older daughter is a junior in college, and she has a high school senior.
The problem isn't just one of dollars and cents. Students who feel unduly burdened by their finances often wind up dropping out of school.

A Harvard analysis of OECD data found that the U.S. has the highest dropout rate in the industrialized world. And a 2011 report by the Pew Research Center found for people ages 18 to 34 without college degrees, two thirds said they left to support their family, and 48 percent said they could not afford college.

One cause of students' money woes is that by and large, college students are financially illiterate. A recent survey by the Financial Industry Regulatory Authority found that "young individuals display much lower financial literacy than older individuals," and while financial literacy seemed to increase with age, overall, 61 percent of respondents to a simple quiz on financial concepts could not answer more than three out of the five questions correctly.


In addition, students are faced with simultaneous financial challenges. They may be contending with loan obligations and financial aid refunds, a food budget for meals not on the meal plan, textbook purchases and a checking account, with or without a debit card.

Financial service providers are often eager to work with students, but they don't always make it simple. For example, many banks offer students accounts with low or no minimum balance requirements, but they may charge a lot for overdrafts. And often, a school will have an agreement with a company to disburse financial aid payments via a debit card on the back of a student's ID card. That can create a whole new set of temptations—and of course, companies in that business can charge hefty fees for services like balance inquiries.
The upshot is that students are often graduating with hefty debt—and not just from financial aid. A recent study by Fidelity Investments found that 70 percent of the class of 2013 graduated with debt. The average amount of $35,200 included an $3,000 in credit card debt.

What can students and their parents do to avoid these financial pitfalls?

Suze on Paying for College: Don't Do This!

 

Suze Orman has a warning for parents of college students on what they absolutely shouldn't do to help pay the tuition bill.

The first step is to talk, says Keith Bernhardt, vice president of college planning at Fidelity Investments. "I think that more could be done from a planning perspective, and having eyes wide open about what the total cost of college might be."

Parents should also monitor what their kids are doing. Seaman recommends that parents have access to a child's college bank or credit card account. "They can spot the financial pitfalls that kids are falling into," she said. One option is a prepaid credit card where transaction notices flow to the parents. Another is adding the child to a parent's credit card—setting a lower credit limit for the child.
It's also important to gradually increase the amount of financial independence your child has, once he or she masters the basics. They need to learn to handle money, and it's best to have them make small mistakes while they are in a relatively safe place.

For some students, that opportunity comes when they live off campus. Seaman's daughter, Katharine Rowan, is a junior at the University of Wisconsin-Platteville, and living off campus.
"When we get the bill for electricity, utilities, whatever it is, we all split it four ways and then we pay it," she said. "Groceries – I still have to work on that one." But Rowan is much more financially savvy than some of her friends.

"I wanted a car, but I'm kind of glad I don't have one here," she said. "You have to buy a parking permit for about $200."
—By CNBC's Kelley Holland. Follow her on Twitter

@KKelleyHolland.