Money & Investing – Banks.com

Bottom line: We expect our government to do a lot for us. Even though we complain about the budget and big-spending ways, what would be the reaction if the government stopped doing any of the maintenance that they do on the roads? What if all of a sudden you didn’t get any Social Security, the government said, “Worry about your own jobs, oh, and forget unemployment benefits”, or you didn’t have access to Medicare? If you stop and think about it, we demand a lot from government right now. And while it is true that there is a lot of unnecessary spending going on in the form of pork, the bottom line is that if we expect the government to do all this for us, it’s going to have to be paid for.

As I watched the State of the Union last week, it dawned on me that we have a lot of inconsistencies in the way we view money, as a society. We whine and moan about deficits, while demanding more from our government and complaining that taxes go up.

Face it: Everyone from Main Street to Wall Street to K Street has been on a spending bender the last few years, and it’s coming home to roost. Obama is prepared to raise taxes on those making more than $200,000 a year ($250,000 for couples), and hoping that the political fallout won’t be the end. Look for increase to capital gains as well. But someone had to do it at some point, and woe be to the unfortunate guy (or gal) who has to actually raise taxes on the middle class. Because it’s going to have to come.

The idea of deficit spending has been popular with both parties since the 1980s when Reagan embraced it (after first castigating Carter, which is funny, since Reagan oversaw a larger expansion of government). At any rate, Democrats have been doing their share of deficit spending when they can as well. It’s popular to spend money on the people, and not ask them to cough up for it. And, quite honestly, we the people have been happy to allow it to happen. But someone has to pay for all the things we’ve demanded, and the taxes are coming…

Image via Wikipedia

One of the issues that the economy faces long term is the fact that the federal deficit is ballooning at a rather rapid rate. And it’s going to get bigger. The Senate passed a measure yesterday that would increase the federal debt limit to $14.3 trillion. That is $1.9 trillion more than the current cap, which is the product of raises since the financial crisis hit. The vote in the Senate was along party lines (although Republicans didn’t mind raising the deficit limit as much when President Bush was in office), and the measure now goes to the House before landing on President Obama’s desk.

The new deficit cap allows U.S. federal debt to reach levels practically unheard of for a country of out stature, reports BusinessWeek:

Congressional Budget Office Director Doug Elmendorf warned lawmakers the nation’s indebtedness is moving into territory “that we don’t see in very many other developed countries.”

He told the Senate Budget Committee today that there is a “fundamental disconnect between the services that people expect the government to provide, especially for benefit payments to older Americans, and the tax revenue they’re prepared to send to the government to finance those services.”

The imbalance can’t be fixed with “minor tinkering” and must be addressed “if the nation is to avoid serious long-term damage to the economy,” Elmendorf said.

And Elmendorf makes a good point. There is a whole laundry list of things “we the people” expect from our government. We want the government to fix our health care, to fix our retirement (through Social Security), to create jobs and any number of other things. But at the same time we as a people are demanding more for our government than ever before, we are digging in at the thought of more taxes, and yelling about it. We may complain about the deficit, but the moment someone tries to take away some of the very costs causing the deficit, we yell and scream.

Until we manage to resolve our monetary inconsistencies as a country, our entire financial system will be in jeopardy.

Image via Wikipedia

As the year draws to a close, it’s time to look over your investment portfolio and think about rebalancing. In many cases, this can mean getting rid of investments that have lost money and are not likely to recover those losses in the future. Even with the stock market on the rise again, it is possible that some of your investments are long-term losers, rather than just going through cyclical losses along with the rest of the market. If you have some stocks that fit that description, you can reduce the pain of it all by reaping a tax benefit. No, it may not completely make up for your losses. But you can at least get a little back.

When you sell your losing long term investments, there are some tax advantages. Here are the two main advantages:

1. You can offset some of your capital gains: You can use your losses to balance out your capital gains, reducing the gains you have that are subject to capital gains taxes.
2. Reduce your taxable income: You can also lose some of your losses (up to $3,000 for married filing jointly) to reduce your taxable income. In some cases, this might be able to bump you down a tax bracket.

If you have a loser that you have still made some small gains on because you have held it for so long, you can still benefit. Donate that stock to charity. You won’t have to pay capital gains taxes, and you can deduct the entire value of the stock on your taxes. This can be helpful in its own way. However, this trick doesn’t work if you have lost on your investment. Instead, sell the investment for the loss, report the loss on your taxes, and then donate the cash to charity and take a separate tax deduction for that. Just make sure that whatever transaction you engage in is cleared by the end of the year.

You should check with a tax professional first, though, to work out the best strategy. A qualified financial planner or some other professional can help you work out a tax efficiency plan that can help you — just in time for tax season.