10 Ways to Get Americans Spending Again

By PHILIP MOELLER

Posted: July 29, 2011

Despite years of near-zero interest rates and government stimulus programs, American consumers have not recovered their spending appetites. They are still reeling from big mortgage and other debts, facing stagnant wages and long-term unemployment, and desperately seeking reasons to once again believe in the American Dream.

[See 10 Smart Ways to Improve Your Budget.]

Since consumer spending is responsible for more than two-thirds of U.S. economic activity, employers are reluctant to hire people until they see more demand. So while corporate profits continue to soar, those trillions of booked earnings stay on the sidelines while economic growth sputters.

Many of the most impartial judges of the U.S. economy and government fiscal policy can be found overseas, in governments and financial institutions, and among the many organizations that hold half of our public debt. They have a big stake in U.S. financial stability. And they're not running for elective office in the United States in 2012.

For the most part, our foreign creditors want to see evidence that the United States is on a sustainable path toward meaningful reductions in annual government deficits. If this evidence was coupled with more short-term stimulus, their reaction would be, for the most part, favorable. But any short-term stimulus must be part of a longer-term plan—a binding plan—to reduce deficits.

In a recent overview of the U.S. economy, the International Monetary Fund (IMF) listed two main concerns about the country's fiscal condition and deficit fight. One was default. The second was steep spending cuts, or what the IMF described as "an excessively large upfront fiscal adjustment that would significantly weaken domestic demand." Sorry, that's the way economists write.

"A politically-backed medium-term framework that raises revenues and addresses long-term expenditure pressures should be the cornerstone of fiscal stabilization," the IMF said in the report.

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Here are 10 ideas that have been widely suggested by economists and others to get consumers back into the game. Don't expect to find quick fixes. As the nasty debt-ceiling fight shows all too well, the United States has run out of easy solutions. Also, many ideas involve short-term increases in government spending. Maybe this seems like a non-starter. Many people think horrendous deficits are what got us into this fix in the first place. There is an enormous gap between liberal and conservative thought here, and it's not going away. Increasingly, however, many fiscal experts have come to believe that government stimulus programs of the past two years were too small and not effectively targeted to create a lot of new jobs. The failure of those stimulus efforts does not, by itself, mean that stimulus programs don't work.

1. Boost consumer confidence. The very public food fight between Republicans and Democrats has been terribly damaging to public confidence. Our "leaders" need to discuss their differences in less hostile ways, reach a solution, and give Americans some reason to trust that their national government has their best interests at heart. Even if sharp differences remain, Congress and the White House should abandon their scorched-earth politics.

2. Agree on a long-term deficit reduction plan. Yes, this is a no-brainer. But we haven't seen one yet. To be credible, the plan must address healthcare and other entitlement programs. Don't expect seniors to applaud fiscal restraint that comes at their expense. But they know cuts are coming and will accept them, particularly if accompanied by higher taxes on wealthier Americans. Shared sacrifice must be apparent.

3. Start fixing the mortgage mess. It will take years to work off the excesses of the housing bubble. But the clock won't start moving in earnest until and unless the government does a more effective job of speeding the review of troubled mortgages and helping to get them cleared off the books. These mortgages are a toxic overhang to a housing recovery, and the lack of home purchases and new-home construction is a huge drag on the economy.

4. Continue the payroll tax breaks for Social Security taxes. President Obama supports an extension through 2012 of this year's two-percentage-point reduction in the employee share of Social Security payroll taxes. The reduction reduced the tax to 4.2 percent from 6.2 percent of covered payroll, up to $106,800 in annual wages.

5. Extend unemployment benefits. Long-term unemployment is becoming a terrible legacy of the Great Recession. As more and more Americans find themselves out of work for a year or more, their financial safety nets have become shredded.

[See Credit Cards Gone Wild.]

6. Expand job-training efforts. Job skills erode quickly in a knowledge-based economy. If we want to help reduce long-term unemployment, we need to step up our efforts to refresh and enhance job skills. Many job openings now go unfilled for lack of skilled applicants.

7. Adopt a government stimulus program for public works. Much of our infrastructure is decaying and at risk of falling apart. What better time to address these needs, and will prices ever be cheaper? There is great unused capacity and labor for this work. But let's do it smartly, with strong federal-local partnerships that define high priority work that's ready to be done soon.

8. Let the government negotiate lower drug prices for Medicare beneficiaries. Medicare is not allowed to negotiate drug prices with pharmaceutical companies. Bills are regularly introduced to overturn this outdated nod to the myth of private price competition for branded prescription drugs. I guess we could all move to Canada, where drug prices are sharply lower than in the United States. But maybe there's a better way.

9. Encourage just a bit of inflation. Somewhat higher interest rates would help to get capital off the sidelines in search of more attractive returns. It also would help reassure seniors by boosting their earnings on conservative retirement investments.

10. Strengthen the dollar. Higher interest rates also should boost demand for dollar-denominated assets. This will give American consumers more buying power for imported goods. If you want consumers to spend more money, give them more money to spend. A stronger dollar fits this bill. A stronger dollar would make it harder for U.S. firms to sell their exports. But the IMF study said that strong export activity by U.S. firms has not been contributing to overall domestic economic growth.

9 Steps to Effective Problem Solving

Problem solving is a skill that start-up founders need to learn quickly. Use these steps to guide you.

By Martin Zwilling Business Insider | Jul 26, 2011

Creating a start-up, or managing any business, is all about problem solving. Some people are good at it and some are not—independent of their IQs or academic credentials (there may even be an inverse relationship here). Yet I’m convinced that problem solving is a learnable trait, rather than just a birthright.

Entrepreneurs who are great problem solvers within any business are the best prepared to solve their customers’ needs effectively, as well. In fact, every business is about solutions to customer problems: no problems, no business. Problems are an everyday part of every business and personal environment.

Thus it behooves all of us to work on mastering the discipline of problem solving. Here is a formula from a book by Brian Tracy, No Excuses: The Power of Self-Discipline, that I believe will help entrepreneurs move up a notch in this category:

1. Take the time to define the problem clearly. Many executives like to jump into solution mode immediately, even before they understand the issue. In some cases, a small problem can become a big one with inappropriate actions. In all cases, real clarity will expedite the path ahead.

2. Pursue alternate paths on “facts of life” and opportunities. Remember, there are some things that you can do nothing about. They’re not problems; they are merely facts of life. Often, what appears to be a problem is actually an opportunity in disguise.

3. Challenge the definition from all angles. Beware of any problem for which there is only one definition. The more ways you can define a problem, the more likely it is that you will find the best solution. For example, “sales are too low” may mean strong competitors, ineffective advertising, or a poor sales process.

4. Iteratively question the cause of the problem. This is all about finding the root cause, rather than treating a symptom. If you don’t get to the root, the problem will likely recur, perhaps with different symptoms. Don’t waste time re-solving the same problem.

5. Identify multiple possible solutions. The more possible solutions you develop, the more likely you will come up with the right one. The quality of the solution seems to be in direct proportion to the quantity of solutions considered in problem solving.

6. Prioritize potential solutions. An acceptable solution, doable now, is usually superior to an excellent solution with higher complexity, longer timeframe, and higher cost. There is a rule that says that every large problem was once a small problem that could have been solved easily at that time.

7. Make a decision. Select a solution, any solution, and then decide on a course of action. The longer you put off deciding on what to do, the higher the cost, and the larger the impact. Your objective should be to deal with 80 percent of all problems immediately. At the very least, set a specific deadline for making a decision, and stick to it.

8. Assign responsibility. Who exactly is going to carry out the solution or the different elements of the solution? Otherwise nothing will happen, and you have no recourse but to implement all solutions yourself.

9. Set a measure for the solution. Otherwise you will have no way of knowing when and whether the problem was solved. Problem solutions in a complex system often have unintended side effects which can be worse than the original problem.

People who are good at problem solving are some of the most valuable and respected people in every area. In fact, success if often defined as “the ability to solve problems.” In many cultures, this is called “street smarts,” and it’s valued even more than “book smarts.” The best entrepreneurs have both.

IRS Reports Increase in Tax Scams

There is no such thing as free money.

Let’s just go ahead and get that out of the way first thing.

Our Treasury does not have a pot of money just sitting around waiting for you to scoop it up (we’re nearly bankrupt, remember?)

And no matter what anybody tells you otherwise, tax credits, refunds and rebates are based on a set of tax-related criteria. You don’t get points on your tax return for being cute or Welsh or listening to country music.

Despite the fact that deep down we all know that you can’t get something for nothing, the IRS is seeing an increase in attempts to get taxpayers to file false claims for tax credits or rebates. These efforts – scams – are generally targeted to lower income taxpayers who might not have a filing requirement in the first place.

In particular, the IRS has noted a flurry of schemes in the South and Midwest tied to local churches. The folks that promote these schemes have been posting flyers and advertisements claiming that free money is available from the IRS. They further suggest that little or no documentation is required in order to file for large refunds and rebates. And since they are “partnering” with churches, based on false promises to the congregation and staff of the church, some taxpayers believe that the claims must be true.

A number of the schemes are targeting the elderly and low income individuals who are advised that they may be entitled to refunds based on excess Social Security benefits or payouts. Schemers are also advising taxpayers that they can transfer funds from the Social Security Administration directly to the IRS by simply filling out a form.

What do the promoters of these schemes get out of it? In some cases, these unscrupulous preparers get paid large fees upfront. In others, they may be inflating credits and deductions in exchange for a piece of a sizable refund.

Don’t be fooled. If something sounds too good to be true, it probably is. Here are some danger signs to look for:

• Offers for tax refunds or rebates that state that no documentation is required;
• Claims for expired credits (such as the Economic Recovery Credit Program or Recovery Rebate Credit);
• “Reconstructed” (in other words: made up) tax forms that misstate your income;
• Advice that suggests you exaggerate the amount of income you make in order to increase availability for tax credits;
• Requests for bank or personal information that is not related to your taxes;
• Large, upfront payment for services from tax preparers that appear overnight or that you’ve never heard of; and
• Preparers who refuse to sign tax returns.

Trust your gut. If you don’t feel comfortable, walk away. A real tax professional won’t be insulted if you do – and a bogus one doesn’t deserve your business.

Has Your Real Estate Market Hit Bottom?

Whether you're waiting to sell your house or you're waiting to buy, everyone involved in the real estate market is waiting for one thing: the bottom. Prices in most areas of the country are continuing to fall, and the Christian Science Monitor reports that experts are predicting a wide range of change. In short, they believe either prices are at bottom, or they could fall by another 20 percent.

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Monthly sales are also still falling. The National Association of Realtors reports that sales in May 2011 were down slightly from April, and over 15 percent down from this time last year. So how do you know if your market has hit bottom? The experts, looking at pages and pages of data, don't seem to know any more than we do. The good news is that often, we can make slightly more accurate predictions than the experts. Why? Because we know our communities. This insider information can offer valuable clues on whether or not your housing market has hit bottom.

Here are four things to look for to assess the real estate market in your city.

1. Employment Rate

Jobs are the most important factor in deciding whether or not a market has hit bottom. When people have or get jobs, they buy houses. If your community has stagnant job growth, or job layoffs looming, chances are that prices and sales will continue to fall. Keep an eye on the job market in your community. For instance, if a large company is planning to open up shop within 10 to 20 miles of your home or the community where you want to live, this could signal a spurt of growth.

If you're about to sell, you might want to wait until this company is up and running, drawing in all those employees (and flooding the community with capital). If you're waiting to buy, you might want to do so before they open, in case values go up a bit. Another signal is expansion. If major employers in your area are about to start hiring, this could be a good sign your market will start to improve.

2. Renters' Market

People typically rent houses when they can't afford to buy one. Likewise, people will rent out the houses and condos they own when nobody is buying. If you live in an area where the renters' market is up, the real estate market is down and it's probably not a great time to sell. But if you live in a market where there aren't many renters, or buying is cheaper than renting, it's a good time to sell, as people are more likely to buy homes when it's more affordable than renting (i.e. more on the debate of renting versus buying a home).

[In Pictures: 10 Smart Ways to Improve Your Budget.]

Trying to decide if you should buy? Go to Rentometer. This tool allows you to input how much you're paying for rent, and the Rentometer compares it to all the other rentals in your area. Figure out how much you'd ideally spend per month owning a home. If owning a home is cheaper, you should look at buying. However, keep in mind that you'll probably be competing with more buyers in your area.

3. Foreclosures

Foreclosed homes are bad for every neighborhood because they drag down prices, as well as prestige. Communities won't recover from the bottom until the rate of foreclosures starts to slow down. Get your hands on the foreclosure rates for your county, city, or community. If rates are slowing, this could be a good sign that you might have reached bottom. If they're holding steady or increasing, your market has not yet bottomed out.

4. Time on the Market

Nationally, it takes around nine months for a house to sell once it goes on the market. However, talk to your local real estate agents and realtors. If your community has a three to six month turnaround time, this signals not only that people are buying, but that there are fewer homes to buy. Both are very good signs for sellers! On the other hand, if houses are sitting on the market for 9 months or more, buyers will have more negotiating power, and it's a sign that the market is heading downward.

Final Thoughts

Without a doubt, we're all ready to hit the bottom of this barrel, and although experts can take educated guesses at when the real estate market will start to recover, many times we can get a more accurate look just by paying attention to what's happening in our own community. Look for clues in employment and the real estate market in your community to decide if it's a good time to buy, sell, or just stay put for a little while longer. Based on the four factors above, has the housing market in your community hit bottom yet? Or does it still have a long way to go?

Heather Levin has a passion for green living and smart money management, and writes about her experiences and best tips on Money Crashers, included in the list of top personal finance blogs online.

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Tax Tips for Sub S Corporate Structures

My article “Tax Tips for S Corporate Structure” that ran on May 20 spurred numerous e-mails from CPAs all over the country stating that I had made an error with regard to the ability to write off rental losses against Sub S income, all of which are declared on Schedule E of a person’s individual income tax return. The main concern is that rental losses are treated as passive losses, whereas Sub S income is non-passive income. You can’t mix apples and oranges: You can’t net passive losses against non-passive income.

To explain the concept simplistically: Passive income is income you receive while sitting around, such as interest from a savings account, dividends from stock holdings, or rents from apartment buildings. (Can’t resist the aside, you also can’t write off rental losses against dividend or interest income even though they are in the same class of income.)

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For those of you who get up every day and go to work at your Sub S Corporate business where you sweat and struggle to claw your way to the top, you’re not thinking that it’s “sitting around income.” This has got to be non-passive income, right?

Well… Please note: this is one of the advantages of incorporating as a Sub S Corporation. Sub S corporation income and losses are treated as passive for tax purposes. Yes, this is counterintuitive, especially if the shareholder in question also has W2 wages and material participation in the entity. Material participation – that pretty much means you go to work every day.

No one ever said the IRS is always logical.

But still, I wondered if I had missed something in my research. And because tax law is so complicated, I decided to get to the bottom of it. I discussed my findings with an IRS auditor, a tax attorney, my office mate who is also an enrolled agent, as well as with an individual in the Tax Law Department at the IRS. They all agreed with me.

But the biggest tipoff is Schedule E itself. Note that rental losses are listed on page 1, line 26; Sub S income is listed on page 2, line 32. What happens next? These two totals are combined and netted out (along with several other line items on the form) on line 42 and transferred to line 17 of Form 1040. This function alone (without any reference to work-sheeting) demonstrates that the principle I outlined is in fact correct. Don’t believe me? Go to www.irs.gov, bring up Schedule E and try it yourself.

So when you, as a Sub S Shareholder, lose $25,000 on your apartment building rentals but earn $200,000 from your Sub S Corporation, you will pay taxes on $175,000. You will not have to carry forward the $25,000 loss on the apartment building and pay taxes on $200,000, after all. You’re going to save a lot of money in taxes because of this provision.

This is a useful tool for the self employed. Once income levels for sole proprietors and partners in a partnership reach the point where rental losses will no longer be allowed (or phased out) and it is otherwise time to incorporate, the Sub S election will be quite the tax-saving device. This device also comes in handy if rental losses exceed the $25,000 maximum allowed under current tax law for passive activities at lower income levels.

But before deciding to incorporate as a Sub S, check all aspects to determine if the structure will suit your needs and psychological temperament. In other words, can you keep up with the rules and the paperwork requirements? Also check with your attorney to make sure this structure is the best form to protect you legally. And check with your tax pro to determine what your tax savings will be.

Other items about Sub S Corporations not included previously:

1. Income and losses must be allocated to shareholders according to their percentage of ownership;

2. You cannot deduct losses in excess of your investment;

3. You cannot have more than 100 shareholders;

4. Each shareholder must be a permanent U.S. resident;

5. Fringe benefits for more than 2% owners are not deductible at the corporate level – you may take the appropriate deductions for fringe benefits, such as retirement plan contributions and health insurance as an adjustment to income on your individual income tax return;

6. Not all fringe benefits are deductible like they would be if the entity was a C Corporation, e.g. life insurance and disability insurance;

7. As an owner, you must take payroll before you take a distribution of profits.

Speaking of complexities with the tax law, here’s a tid bit for you regarding my recent column about casualty losses: Beginning in 2010, you may take a casualty loss deduction for drywall corrosion. This just makes me shake my head and roll my eyes.

The implementation of this exception defeats the entire premise of no deduction for slow acting damage such as corrosion, dry rot, rust, termite damage, etc. Per IRS regulations, a deductible casualty loss is caused by a sudden and unexpected occurrence. Why the hell should drywall corrosion suddenly become an exception? It doesn’t make sense and it further complicates a tax code that has become far too burdensome and complicated for the average human to comprehend.

Read more: http://www.foxbusiness.com/personal-finance/2011/06/30/tax-tips-for-sub-s-corporate-structures/#ixzz1RR6cuvrH

Facebook Tipped to Announce Deal With Skype

PALO ALTO, Calif. – Facebook has plans for an "awesome" unveiling Wednesday, according to CEO Mark Zuckerberg, who is expected to announce a partnership with Skype, the Internet video calling company.

Facebook is not saying exactly what is in store, but sources close to the companies say a Skype partnership is inevitable. The union would bring video-chat capabilities through Facebook, allowing multiple friends to talk at the same time.

Video chatting is one of the few social networking features lacking in Facebook, an omission that has become even more glaring since Google launched an application called Hangouts.

Last week, the search giant unveiled Google+, a Facebook clone designed to play catch up in the social network space. Hangouts, a feature within Google+, has received some positive feedback for making video calls easy.

Facebook is feeling the pressure from Google's latest social networking effort, which prompted the big announcement, according to some industry observers.

Representatives for Skype said they would not comment on "rumors" of a Facebook partnership.

A number of reports said that Wednesday's Facebook show could take another direction and might be a showcase for new software, including potentially a new Facebook iPad app.

However, Facebook was not ready to reveal a new music partnership with the likes of Spotify, as has been rumored, a music industry source said.

Read more: http://www.foxnews.com/scitech/2011/07/06/facebook-tipped-to-announce-deal-with-skype/#ixzz1RL4HMQJb