Who Has The Strongest Income Inequality Case?
Why MyRA Really Won’t Help Much

Money bowlI know there is probably a lot to talk about when it comes to last night’s State Of The Union Address but how many people will be fooled by this MyRA thing?

I don’t think many people will debate the fact that people who are north of 65-years-old and have retired must be one of the most disadvantaged groups over the last few years when it comes to income.

Why?

Back in the old days you could count on a nice 5% or more return on money left in a good old fashioned bank Certificate of Deposit. And that money was 100% safe because of our friends at the FDIC.

roth-ira-11So… If you were retired and had a million dollars money in the bank you could be assured of a nice $50,000 a year income. And don’t let the prospect of squirreling away that million dollar nest egg scare you. Assuming you have forty-five working years you only needed to save about $6,000 a year. That assumes a 5% return on your saved money and that you started 45 years ago in 1969.

The story now and going forward is much bleaker for anyone who doesn’t plan on staying employed and dropping dead at their job when they’re ninety-seven.

Problem number one: Now you can only get 1% interest on those super-safe bank certificate of deposits so you would need closer to $5 million to generate that same $50,000 a year income. Thus instead of saving $6,000 a year you would need to save over $31,000 a year. Big difference and all because of these low interest rates.

Why are the interest rates so low and virtually starving people who need to live off their savings?  Thank your friends in D.C. for that. These artificially low interest rates have been a boom to the economy basically on the backs of retirees. Making them some of the most unequal when it comes to income inequality.

Cost-of-LivingProblem number two: Let’s say your crystal ball told you back in 1969 that you would only earn 1% income on your retirement nest egg. Then you would need to save much more money to actually retire some day. But the only way to save more would be, unlike IRAs and other retirement accounts, with money that has already been taxed at least once. This reduces the amount you can put away and every year you would have the awesome wind resistance of paying taxes on any earnings. A good part of your earnings every year over that forty-five years would go straight to the IRS.

The big question is… Why doesn’t Uncle Sam let us save as much money as we want in our retirement accounts? Right now ROTH IRAs are limited to a maximum annual contribution of $5,500 or 6,500 if you are over 50. Not nearly enough.

And this MyRA thing seems like just a distraction. The amounts I have heard are still too small to make a real difference for future retirees.

IRA coinsLet people save as much money as they want for retirement. And let that money grow tax free. That is unless there is some kind of guarantee that when a working person retires at a reasonable age like 65 there will be enough Social Security money to reasonably house, feed, and clothe a person.

But no one in D.C. would dare make that guarantee. And even now they are cheating Social Security recipients with a wacky inflation/cost of living index while they come up with plans to cut benefits for future retirees.

The big message here is that you better save as much cash as you can because when you get to your Golden Years you will probably be largely on your own.

And this MyRA will probably not generate enough money to pay the rent you will need to pay to live in your kid’s basement.

Is Internet Sales Tax Just a Costly Diversion?

InternetSalestaxWhen in doubt the people in Washington seem to always default to “tax the people” mode.

Years ago when Internet commerce started the kind people in Washington decided to waive sales tax for purchases made online. How nice of them. They claimed they were doing it to help promote business over this new fangled thing called the World Wide Web.

That’s what they said but what right do they have to layer another tax on the people?

The reason your local retail stores should charge sales tax is because the local government needs to spend extra money for police, fire, roads, etc… to support that storefront. They really have not right to levy a tax on some Internet based merchant across the country. They are not incurring any additional expenses because that merchant happens to sell you some product.

Another complaint is that online stores that do not charge sales tax pose unfair Isalestax2competition for local stores who do charge sales tax. I don’t think a sales tax of 1% to even 10% will keep people from buying products from their local stores. But a few things that will keep them away from their local stores could be; lack of product selection, nasty store clerks, non-unique products, the trip to the store (just to find out they don’t have what you want), and inconvenient store hours.

So if this Internet tax does go through then what will those less than sharp local retailers have to complain about. Will they expect congress to limit the selection and service online retailers offer? Will they ask for disaster funds to hire and train competent employees?

itaxes3Here’s what it comes down to… At 2:14 AM I read an article in the paper about a new book that sounds interesting. I want to own the physical book so an electronic version will not work for me. I am not going to jump in my car, find a book retailer, deal with arrogant staff to help me find the book then drive home. I am going to do what most people would do. Take less than one minute to order the book online and be happy when it sows up on my doorstep in a day or so.

This is what Internet retail is all about. Convenience and service. Tack on a few extra pennies in taxes will not stop me from buying online. But it will open the barn door on even more taxes.