Muni Tax Break Escapes Debt Supercommittee

Last month, President Obama proposed his America’s Jobs Act of 2011, which included a provision that would reduce the tax break for muni bond investors. In short, individuals who earn more than $200,000 a year ($250,000 for married couples filing jointly) would have to pay the difference between the value of the tax exemption of a 28% rate payer and that of a 33% or 35% rate payer.

However, just last week, Investment News reported that the US debt “supercommittee” – the 12-man congressional task force charged with finding ways to lower the nation’s debt – would not recommend reducing the tax break enjoyed today by municipal bond investors.

(CLICK HERE to log in free and read the Investment News report, October 2, 2011)

If the tax break was reduced, the lower overall return would behoove municipality issuers to increase rates, which would in turn increase the cost of the infrastructure projects these bonds are meant to fund. Furthermore, the move could persuade high-end investors, who make up the majority of the muni bond investment market, to look elsewhere for high-yielding dividend investments.

But since we can be reasonably confident that the tax break will be preserved, a review of the current state of municipal markets offers some interesting prospects. According to a recent analysis by, the municipal market has experienced less than $1 billion in par value worth of defaults so far this year (which equates to about three-quarters less than during the same time period in 2010).

Muni bond experts quoted in the article say that, assuming yields remain low, these securities are inexpensive relative to US Treasury bonds. In addition, new issues are beginning to flood the market since interest rates have dropped further, and because there is significant improvement in the stability of this market, investor demand is also increasing.

(CLICK HERE to view video of the “Muni Watch: Time to Invest?” report from, October 5, 2011).

In its October On the Markets commentary, the Global Investment Committee at Morgan Stanley Smith Barney observed that there are substantial differences in the muni market today than a year ago. For example, both state and local governments have done a great job closing budget gaps and states have produced seven consecutive quarters of growth. This has helped to reduce investor anxiety regarding the credit quality of issuers. When looking at quality, keep in mind that credit spreads for bonds rated below AAA are significantly wider than historical averages, which provides a favorable risk/reward tradeoff and the potential for higher income.

(CLICK HERE to view MSSB’s most recent On the Markets commentary, October 2011)

Overall, the municipal market is extremely diverse, and credit ratings may not be up-to-date in terms of improved quality. This market inefficiency can offer substantial credit at reduced risk – which may not be apparent to the broader market. If you’re interested in taking a more in-depth look at the muni bond market for your own portfolio, please give us a call!



Quarter End Roundup & Ideas

September 30th marked the end of the third quarter, a 3-month period rocked by 11th hour lawmaker dissention, the Standard & Poor’s® US rating downgrade, rising fear over the European debt crisis, and volatile markets that were up one week and down the next. 
Bad news last Friday revealed that Americans’ incomes decreased in the month of August for the first time in nearly two years, at a reduction of 0.1%. The personal savings rate also decreased to 4.5% – its lowest level since December 2009.

(CLICK HERE for the full August Personal Income and Outlays Report, Bureau of Economic Analysis, September 30, 2011.)

Investment Markets
Jeremy Siegel, a finance professor at Wharton, takes an optimistic view of the negative news. “When everyone has become optimistic or pessimistic, then you know you have reached a top or a bottom. The prevailing opinion is always wrong.” He believes that stocks are the most attractive investment out there based on valuations, noting that there is downside protection knowing that you’re not buying at an inflated price.

(CLICK HERE to read the full article, Does ‘Stocks for the Long Run’ Still Work? at Wharton Today, September 28, 2011)

Wanted: Entrepreneurs
These days it seems like the hottest discussion no longer centers on national debt, real estate values or even the rollercoaster stock market – it’s all about jobs. On September 8, President Obama proposed his Americans Jobs Act, which includes reducing payroll taxes by 50% (to 3.1%) for small businesses for the first $5 million in wages and providing up to $4,000 in tax credits to businesses that hire workers who’ve been unemployed for six months.

In addition, the SBA recently announced the administration has helped secure commitments from 13 private lenders and large banks to increase lending for small businesses by a combined $20 billion over the next three years.

(CLICK HERE to read the full White House press release detailing the American Jobs Act, September 8, 2011)

(CLICK HERE to view a video announcement of $20 billion commitment to small business, White House, September 22, 2011)

Most economists seem to agree that the job market can only be saved by the small business sector, historically responsible for creating three-quarters of new jobs each year. In fact Charles Schwab recently took pen to paper in an editorial published at in the Wall Street Journal to talk about his experience founding the fledgling brokerage firm back in 1974, when unemployment and inflation were high but the economy and consumer confidence similarly weak.

“We can spark an economic recovery by unleashing the job-creating power of business, especially small entrepreneurial businesses, which fuel economic and job growth quickly and efficiently,” Schwab writes, noting, “Indeed, it is the only way to pull ourselves out of this economic funk.”

(CLICK HERE to read Schwab’s article at the Wall Street Journal, September 28, 2011.)

What does this mean for investor portfolios? One might consider that investing for your future truly means investing in America – via established and start-up companies. And if you’re seeking growth and willing to accept the risk, note that the Dow Jones U.S. Venture Capital Index reports that the market value of venture capital-financed companies rose 10.1% in 2011’s first quarter.

(CLICK HERE to read performance press release from Dow Jones Indexes, September 20, 2011.)

Please contact us today if you’d like to discuss positioning your portfolio with new growth alternatives for the future!



Has CLASS Been Let Out?

Current Administration is “reassigning the workers in the office that was developing the Community Living Assistance Services and Supports (CLASS Act long term care benefits plan – a program that is part of the Patient Protection and Affordable Care Act (PPACA).”


(CLICK HERE to read about the reassignments in detail in the September 22, 2011 National Underwriter article.)


A provision supported by the late Sen. Edward Kennedy, the CLASS Act provision in PPACA, is responsible for creating a National, work-site, voluntary insurance program that workers would use to buy LTC protection.  HHS Secretary Kathleen Sebelius has been called to define the CLASS benefit by October 2012 per the PPACA.

“As we have said in the past, it is an open question whether the program will be implemented,” Sebelius said. “A CLASS program will only be implemented if it is fiscally solvent, self-sustaining, and consistent with the statute.”

A new entitlement couldn’t possibly help reduce the budget deficit the Administration is so desperately seeking to address, according to The New American. “First the administration asked the Senate Appropriations Committee to zero out funding for CLASS for fiscal year 2012 despite having previously requested $120 million for the program. Sen. John Thune (R-S.D.) applauded the move, calling it a “good first step,” but said Congress should finish the job by repealing the CLASS Act.”

(Read about the history of the provision HERE in an Opinion Feature in The Wall Street Journal.)

Supposedly, the office isn’t closing, but regardless, many don’t want to let the current Administration dictate their LTC protection and greater peace of mind.  Whatever the outcome, many Americans should consider purchasing Long Term Care insurance to protect themselves and their families.

Long Term Care coverage is an insurance product which provides for the cost of long-term care stretches beyond a predefined period.  Long Term Care provides for individuals who are not sick in a traditional sense but who require assistance with “activities of daily living.” 

If you’d like more information on whether you are within the range of net worth and financial liquidity to need to purchase LTC. There is a diverse array of Long Term Care programs available through insurance solutions and planning strategies. Simply contact our office today!


This material has been prepared for informational purposes only.  It is not intended to provide accounting or tax advice. You are encouraged to consult a tax professional specializing in these areas regarding the applicability of this information to your situation.  If you are not currently affiliated with a tax professional, simply contact us today as we would be happy to recommend an individual for these services.



U.S. Ranks 5th in Global Competitiveness

For the third year in a row, the United States has dropped among global competitive economies – this year from 4th most competitive to 5th.Switzerland is at the top of the rankings, followed by Singapore, Sweden, and Finland. For a bit of perspective, Greece ranked 90th out of 142 countries.


(CLICK HERE to read the World Economic Forum Global Competitiveness Report, September 22, 2011)

The report is largely heralded as an indicator of future growth for the countries evaluated. Rankings are based on 12 competitive categories, including higher education and training, goods market efficiency, labor market efficiency, financial market development, and innovation.


Not surprisingly, the report cites public distrust of government and business leaders as a primary reason why the U.S. continues to drop in the rankings. Researchers indicated that the U.S. must reduce its deficit and restore economic stability before it can move up in the rankings.


Weighing in as the world’s second largest economy, China ranked 26th in its competitive ranking this year. Elizabeth Lynn, Emerging Market Strategist with Morgan Stanley Smith Barney, recently observed that economic growth in the Asian emerging markets will depend on China, whose policy response following the 2008 financial crisis was the most aggressive – a $586 billion stimulus package. Now, Lynn explains, “we expect China’s policymakers to try to institute measured fiscal expansion to boost domestic growth – including social housing, consumer spending and urbanization projects – if exports slacken.” 1


Morgan Stanley’s economists estimate EM economic growth of 6.4% for 2011 and 6.1% for 2012 – compared to 1.5% for this year and next among developed economies. This scenario provides a solid foundation for stocks in those regions, whereas organic growth in the U.S. is more likely to be flat for the foreseeable future.


(CLICK HERE to view Morgan Stanley Smith Barney’s Global Investment Committee Report, September 2011)

If you’ve been reluctant to diversify your investment portfolio with more international exposure, these findings should help clarify where the U.S. stands in comparison to the rest of the world. Despite the recent S&P™ ratings downgrade, the U.S. is still considered second to none in terms of financial stability and its ability to make payments. Yet despite this stability – or perhaps because of it – there are other economies in the world that offer not just more growth potential, but also less volatility among risk assets.

In a recent interview with BBC News, Lord Desai (a professor at the London School of Economics and a member of the House of Lords) observed that the virtues of capitalism – risk-taking, saving, investing, hard work – have now migrated to countries like China, India, Indonesia, Korea and Japan. “If Asia has vigorous energetic capitalism and we have tired old capitalism, we will end up paying a huge price and we will trade our prosperity for their prosperity … That is the lesson of the contemporary world.”2

(CLICK HERE to read, Has Western Capitalism Failed? at BBC News, September 22, 2011)


If you are interested in discussing alternative opportunities for your portfolio, please contact  us today!

1 Morgan Stanley Smith Barney Global Investment Committee Report. Accessed September 27, 2011.

2 “Has Western Capitalism Failed?” BBC News. Accessed September 27, 2011.



Helping to Secure Your Estate in an Insecure Market

The current Administration is looking for ways to reduce the Federal deficit and is currently targeting the Estate Tax and Life Settlements among other insurance-based planning tools.  The deficit reduction package could turn the Federal estate tax clock back to 2009. 


This recent proposal could impact life insurance through two provisions: 


“One is supposed to raise $1 billion over 10 years by keeping buyers of life insurance policies from avoiding income taxes on the death benefits.


Another provision, which is supposed to raise $5 billion, would modify the dividends-received deduction for life insurance companies’ separate accounts.” 1

Understanding the role of life insurance in estate planning is critical as the U.S. continues to experience major changes in its Federal Tax policies.  Life insurance protects your family’s lifestyle in the event of your passing through the creation of an immediate tax-free estate and can also act as an excellent estate planning device.  The value for the policy owner is more peace of mind in knowing that the death of the insured will not create financial hardship and/or that his/her estate will remain intact. 


(CLICK HERE for detail in a September 19, 2011 National Underwriter article.)

(CLICK HERE to read a September 20, 2011 article in the Wall Street Journal on this topic.)


The provisions noted above would allow for more taxation of Americans’ financial and retirement assets.  Though it is uncertain if the proposal will pass legislation, it is critical to evaluate the role life insurance can play as an estate planning vehicle and to assess the potential impact of taxation on your estate if the proposed legislation passes.   


NOW is the time to meet with an experienced and knowledgeable insurance producer or advisor who understands the complexities of estate taxation and who can provide insights on the various types life insurance products available to help plan your retirement.  Through the use of appropriate strategies and solutions, you and your beneficiaries could pay significantly less in taxes and maintain more peace of mind even in the current economic environment.


If it’s been more than 12 months since you last had a tax reduction analysis completed, we strongly encourage you to schedule one now.  While current legislation is out of your hands, your estate and your wishes of what is to be done with it are still within your control.   


This material has been prepared for informational purposes only.  It is not intended to provide legal, accounting or tax advice. You are encouraged to consult a tax professional specializing in these areas regarding the applicability of this information to your situation.  If you are not currently affiliated with a tax professional, simply contact us today as we would be happy to recommend an individual for these services. 

1 Accessed Sept. 23, 2011.



Eurozone Bank Fears Assuaged – For Now

Last Thursday, September 15, 2011 the European Central Bank (ECB) announced its intent – through a joint effort with the Federal Reserve Bank, the Bank of England, the Bank of Japan and the Swiss National Bank – to provide US dollars to European banks. This will help beleaguered banks continue operations and lending efforts with adequate liquidity, and temporarily subdue the ongoing threat of defaults in the euro region.


The news of the last two debt packages the ECU granted Greece, Ireland and Portugal created concern among US financial institutions and, in particular, money market fund managers. Reaction against potential overexposure to the European financial institutions bankrolling these countries’ debt led to a sell-off, further exacerbating the ECB’s liquidity issues.


The announcement calls for three separate loan auctions by year end (October 12, November 9 and December 7, 2011) for US dollars at a fixed rate for up to three months, allowing banks to purchase up to the amount of collateral they possess. The goal is to provide banks in the region with liquidity through the end of 2011.

(CLICK HERE for more details at, September 15, 2011)
(CLICK HERE for analysis of the Euro debt situation at, September 14, 2011)

This aid to European banks is a relatively low-cost instrument in the Fed’s tool chest that can also help enable US companies operating overseas to receive loans from the local banks. The move is largely considered a short-term measure, serving to calm global markets and buy the ECB – comprised of about 15 different legislative parliaments – time to properly address and agree on a longer-term solution.


Initially, there was a cautious wait-and-see sentiment among financial analysts. The fact that these banks united to take pre-emptive action is perceived as a positive sign, although no one seems to be under the impression it would carry significant impact any further than the end of the year. One analyst pointed out that past government stimulus efforts (i.e., US quantitative easing) also provided only temporary relief.


At issue is the fact that globally, growth is slowing down even further, making it difficult to produce real earnings. This is a tough environment to actually make money and create long-term solutions. However, as the coordinated central bank action indicates, perhaps for now it’s simply enough to demonstrate a united front to ward off worse case scenarios.

(CLICK HERE for analyst reaction to ECB announcement,, September 15, 2011)

Please feel free to contact us if you have specific concerns about exposure to European financial institutions.1  We’re happy to discuss alternative options which may be better suited for your goals and risk tolerance.

1Not intended to give tax, accounting or legal advice. Please consult with those professionals to discuss the impact on your unique situation.



A Quick Reflection on the Summer of 2011

As we near the first day of autumn (on September 23rd), we thought we’d take the opportunity to reflect – both on the events of these past few months as well as a few “fun facts” about our economy in general.  Some of these may surprise you!

The S&P 500 © was down 8.9% (total return) for the 3 summer months of June-July-August 2011.  The stock index has been negative on a total return basis during the 3 summer months in 4 of the last 5 years.  The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the US stock market.
(Source: Behind the Numbers Research. 2011.     

The S&P 500 has been negative on a total return basis during 4 of the 8 months YTD through 8/31/11.  No calendar year has had more than 4 down months since 2008 when 8 of the 12 months were negative.
(Source: Behind the Numbers Research. 2011.     

5 of the 10 largest corporations in the USA (based upon 2010 sales) are involved either in the auto industry or the oil industry.
 (Source: Fortune

The national average price of a gallon of gasoline finished last month (8/31/11) at $3.617 a gallon – a drop of 16.3 cents a gallon during the 3 summer months of June, July and August.
(Source: AAA. 2011.  

Since every 1 cent decrease in the price of gasoline saves Americans $3.4 million a day, the 16.3 cents a gallon decrease during the 3 summer months of 2011 is equal to a daily gas expenditure decrease of $55.4 million for U.S. consumers as of 9/01/11 when compared to 6/01/11.
(Source: AAA. 2011.  

REAL ESTATE – The average single-family home nationwide peaked in value on 6/30/07 but has dropped by 19% from that maximum value as of 6/30/11.
(Source: Office of Federal Housing Enterprise Oversight. 2011.   

A family with before-tax income of at least $100,000 that had a newborn in 2010 will spend $377,000 (in 2010 dollars) to raise that child through age 17 (i.e., not including the cost of college).  After including the impact of inflation, the 17-year cost rises to $477,000.
(Source: U.S. Department of Agriculture. 2011.   

The unemployment rate in the USA as of 8/31/11 was 9.1%.  The last time the national unemployment rate was less than 7% was 11/30/08.  The highest unemployment rate ever in the country was 24.9% in 1933.
(Source: U.S. Department of Labor. 2011.   



Retirement: A Taxing Endeavor for the Unprepared

Much of the recent debt ceiling controversy has centered around Republicans’ desire not to increase taxes, but a simple glance at our growing debt would lead any sound-minded individual to anticipate the necessity for tax increases in the years to come.

In what’s been regarded by many as a “stealth tax hike” approach, the White House has proposed the notion that once taxpayers exceed a given level of earnings (Ex. $200,000), they would start forfeiting the value of the various deductions they currently enjoy according to existing tax law. The deductions could include IRS Form 1040 line items such as:

·         Personal exemptions

·         Deductions for charitable contributions

·         Deductions for state taxes paid

·         Possibly even deductions for spouse and children

(CLICK HERE for more detail in a July 11, 2011 Wall Street Journal article on this very topic.)
(CLICK HERE for “3 Stealth Tax Traps” featured on July 22, 2011.)

In addition, there is talk of health insurance benefits becoming taxable on your tax return and capital gains being eliminated, forcing individuals to pay ordinary income tax on all earnings on investments.  Should these possibilities come to pass and not be “enough,” many believe taxes will have to rise.

(CLICK HERE for a look at “Why Taxes Will Rise in the End” – an article published July 12, 2011 in The New York Times.)

What does all of this really mean for you and your loved ones?  It means that, just as with many other financial areas during this time of volatility and uncertainty, the time to take any necessary corrective action is NOW.  With proper solutions and strategy in place, you and your beneficiaries could ultimately owe significantly less in taxes – regardless of what the overall tax environment does in the future – than you are currently positioned to pay. 

In retirement, perhaps more than any other stage of life, those adjustments truly matter.  If it’s been more than 12 months since you last had a tax reduction analysis completed, we strongly encourage you to schedule one now.  While you can’t control what taxes will do in the future, you can ensure you’re as prepared as possible for whatever is to come.

This material has been prepared for informational purposes only.  It is not intended to provide accounting or tax advice. You are encouraged to consult a tax professional specializing in these areas regarding the applicability of this information to your situation.  If you are not currently affiliated with a tax professional, simply contact us today as we would be happy to recommend an individual for these services. 



So What’s Ahead for Our Economy?

Few would argue that economy is unstable.  Is the sky is falling? Not last time we checked, but there has never been a time like the present to take inventory, prepare and ensure you have a sound financial strategy for the road ahead.
1 “Federal Budget (2011 and 2012) – Obama and Ryan Budget Plans. NY Times. August 24, 2011.

If you’ve never visited it, CLICK HERE to check out  This website features a “clock” showing our government’s current budget – roughly $3.6 trillion.  In just a decade’s time, that would equate to $36 trillion, assuming, of course, that we don’t increase spending.  (With Social Security, Medicare and Medicaid for Baby Boomers all looming in the wings, the likelihood of our country NOT increasing spending seems slim to none.)

You’ll notice the Debt Clock also indicates Federal Tax Revenue of roughly $2.2 trillion per year – $22 trillion over the next decade if nothing were to change.  Let’s assume, for the sake of illustration, no major changes, as Congress has repeatedly voiced their desire not to raise taxes, our economy continues to struggle, and unemployment remains an issue for millions of Americans.

Let’s stop and consider the math.  Over the next decade, $36 trillion in ballpark spending with $22 trillion in projected revenue would leave a shortfall of roughly $14 trillion.  Even with this month’s proposed $4 trillion budget cuts over the next 10 years1, we’re looking at the very real possibility of adding another $10 to $15 trillion in debt on top of the $14.5 trillion we already owe.  (By the way, if it’s difficult to wrap your mind around the $14.5 trillion we already owe as a nation, CLICK HERE to have that number quickly put into perspective.)  In the very near future, a quarter of our nation’s budget could be used to pay interest on our debt – an alarming reality to face.

What does all of this mean?  While we certainly don’t claim to hold a crystal ball (be cautious of anyone claiming he or she does), some of the signs need no fortune teller for interpretation.  The short to medium-range outlook holds all indication of significant volatility – a roller coaster we simply don’t want our clients enduring. 

If you, your family members or friends would like a complimentary second opinion on your current financial strategy, we urge you to contact our office today.  While no one can predict exactly what the road ahead will look like, we feel certain it will be a bumpy ride for those who’ve failed to prepare.  Please don’t let that be you.



Putting the Numbers Into Perspective

Each year, the U.S. Congress sets a federal budget in the trillions of dollars. Very few individuals, ourselves included, can really wrap their minds around just much money that truly is, so we’ve broken down the 2011 federal budget into relatively simple terms to help us all gain a little added perspective1:

  • U.S. Income:                $ 2,170,000,000,000
  • Federal Budget:            $ 3,820,000,000,000
  • New Debt:                   $ 1,650,000,000,000
  • National Debt:             $14,271,000,000,000
  • Recent Budget Cut:      $38,500,000,000 (roughly 1% of the overall budget)

It often helps to reduce these numbers down into figures we can actually relate to. Let’s remove eight zeros from the figures above and pretend this is the household budget for “the fictitious Jones family.”

  • Total annual income for the Jones family: $21,700 
  • Amount of money the Jones family spent: $38,200  
  • Amount of new debt tacked onto the Jones family credit card: $16,500  
  • Outstanding balance on the credit card: $142,710
  • Amount cut from the budget: $385

So, in effect, last month the Jones family sat down at the kitchen table and agreed to cut $385 from its annual budget. What family would cut $385 of spending in order to solve $16,500 in deficit spending? Some may say it’s a start.  None would argue it’s a solution. 

Now after years of this, the Jones family has $142,710 of debt on its credit card (the equivalent of the national debt).  You might think the Jones family would recognize and address this situation, but it doesn’t, and neither has Congress. 

With the enormity of debt facing our nation and the uncertainty surrounding the future of programs such as Social Security and Medicare, there has never been a more important time to create a sound financial strategy for the days ahead.  We say it time and time again to our valued clients, but even in the midst of such volatile economic times, some things can still be certain.  You can still put solutions in place to help ensure that your retirement income is secure, lasts throughout your lifetime and helps protect you against future inflation and rising healthcare expenses.

If you or anyone you know would like to visit about putting such solutions in place, simply give us a call today!  We may not be able to depend on Congress to right the financial wrongs of the country, but we can put strategies and solutions in place to help ensure YOU are protected – regardless of what’s to come!

1 Office of Management and Budget. August 1, 2011.