AIG – Congress needs to pony up Benefits

March 19, 2009

Just got back from lunch. Radio broadcasters were talking about AIG and employee bonus. But being in the tax field I am always thinking about tax and sometime this is unfortunately.

Back to AIG and Congress and relating the Congress as a shareholder and owner and the duties according to tax law and what this would entail.

The employees of AIG deserve the same medical insurance covereage as what Congress gets due to the tax laws which are in place based upon shareholder ownership percentages and anti-discrimination rules. If discrimination exists then the other party must pay income tax on the amount of the discrimination. In other words it is not tax-free for them. Same with pensions. The basic rules is that if one party or a related group of parties own a minimum of twenty percent of a company then the pension plan which the one owns must be the same offered as what the twenty percent party owns. Thus since the Congress is an owner then the pension plan which Congress has offered itself must be offered to all of the employees of AIG. What a concept. The government as a shareholder must be governed by all of our rules.

This amount of money will seem small in relationship to the AIG bonus payment. Also, to make things equal the government cannot lower the pension amount but must raise the pension to the higher level.

This is one of the reasons why some business acquisition deals do not go through. The selling company employee benefits are too costly and deplete the reason for the bailout or the purchase in the first place.

Good luck Congress in trying to get out of this one.

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Washington State Balanced Budget

March 2, 2009

Mr. Brad Klippert
 
I know you are extremely interested in balancing the budget.

My idea is if something is changed with the senior citizens and nursing home care provided by the state then with some other ideas the state budget can be balanced. 
 
1)  Pass I-1043 Illegal immigrants initiative to the people.  Judge just signed off with the attorneys on the final wording on Friday.  Savings is $1 Billion for the biennium.
 
2)  Cut the aide to children for medical insurance in half.  This aide has increased in recent years from $2 Billion to around over $4 Billion.  This increase is mainly from increasing the parents level of income for qualifying a child for acceptance into the program.  Cutting this number in half will save $2 Billion for the biennium.  Savings now total is $3 Billion.
 
3)  Implement all of Brian Sonntag’s, State Auditor Performance Audits.  I do not see the exact number now on the State Auditor’s website but this should be a little bit over or around $3 Billion.   Although savings may not be fully achieved until later years it is the start of the process.  The Port of Seattle has implemented some of the savings and the employee morale has increase substantially at the same time.  Total savings of around $6 Billion.
 
4)  Senior citizens pay for their own Nursing Home care.  If the senior citizens pay $2.5 Billion for nursing home care paid out of their social security checks in the amount of $150 per month starting at age 65 then this could balance the budget.  This is the area of the numbers which I am trying to gather together at the present time.  Total savings of around $8.5 Billion for the biennium. 

Oh, this balances the budget with a little bit of change.

 
Actually the idea is to help in the process to balance the budget and also start to get the state out of the business of providing free nursing home care.  The state should not be in the business of providing welfare medical coverage.  The CFP and present legal method is to have individuals who can pay to not have senior nursing home insurance but to have the money come out of current earnings.  Edward Jones security advisors say this is with an equity of $3.5 million or more for an individual.  But previously about 15 years ago I was informed that one with $300,000 to $650,000 in assets would not be able to be on the state without draining their bank accounts and assets nor be able to self finance.  This was when the high end of nursing home care was $55,000 per year.  The amount is about $8-9,000 per month at the present time.  Below this level the state would provide coverage.  The strategy for the two lower levels was to get your assets over to an irrevocable trust within 35 months of entering a nursing home or to pay for nursing home insurance for a better quality of life and nursing home care.  My idea would be to get people to pay 15% of their social security income starting at age 65.  The senior citizen recipient could opt out of the state system by paying for their own nursing home insurance.  Notifications would go out at around age 60 and once per year until age 65 to the senior citizens.  Eventually virtually no one except for the very low income senior citizen would be on state assistance.  
 
I was in your office on the Tuesday of the start of the full day the legislature with Craig Keller and Albert Pong.  You put the I-409/I-1043 information in a box of ideas to balance the budget.  How about $8.5 Billion savings for balancing the budget.  
 
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I have one idea which if put together with other ideas I have will balance the State budget.  But I need a little bit more information in order to see if my idea will be viable.  It would require changing the law though.
 
The idea which I am exploring will lessen the stress on the families of the senior citizens.
 
What I am trying to find out now is how many senior citizens there are in Washington State at or over 65 years of age.  My initial findings from the www.ssa.gov website indicate there are 34 million.  91% are receiving social security benefits.  This means that 9% are waiting to the age 70 1/2 to start withdrawing SS benefits.
 
 
While studying for the financial planner, I noticed some drastic financial mutations which have to be gone through for the retirement planning process.  I also realize the State is in a financial crisis.  Mixing my ideas together like a pencil with an eraser I have come up with another idea and one which might help in solving the budget deficit.
 
1)  How many senior citizens are there in Washington State.
2)  How much does each one receive in social security benefits on average. The ssa.gov website says $2715 per month but this number does not connect with what I have been seeing on tax returns.  For Washington State.
3)  How many senior citizens are on full state nursing home care which is subsidized by the state.
4)  How many total senior citizens are in Washington and on nursing home care.
5)  Same last two questions but related to in-home care.
6)  How much is the average cost of nursing home care for senior citizens.
7)  What is the average cost of nursing home care by the state for senior citizens.
8)  What is the average duration of care for state recipients and other private pay recipients.
9) What is the average age of the starting of nursing home care for senior citizens in Washington State. This would be for Washington State recipients and private pay recipients counted separately.
 
Thanking you in advance for your prompt and courteous response to the email.
 
Sincerely
 
Keith Ljunghammar, EA

keithlj.wordpress.com


Solar Cells and your IRA

February 3, 2009

An infrastructure built by individuals

Environmentalism. Environmentalism. Environmentalism. Drill. Drill. Drill.
 
Environmentalists say drilling is detrimental to the environment. The driller claims off-shore and tundra drilling help the animal environment. Friendly drilling needs to continue for the benefit of our society and the animal kingdom.

In the meantime alternative sources of energy “exploration” need to be developed. The solar cell energy industry has advanced considerably. One company claims they can produce a solar cell for $1 and the actual roof-top construction cost is $5 each.

But I have no money. I am working paycheck to paycheck.

You might be saving up some money in a pension plan or in an IRA.
True power lies in the ability of the individual to make decisions. Individual decisions when accumulated collectively can help or hinder a society as a whole. Collectively as the price of “at the pump” gasoline increased the individuals reduced driving habits thus the collectiveness of individual actions reduced the price of gasoline.

In the same sense government actions can help or hinder progress or should I say action or in-action of the individual as well. IRA’s and Roth IRAs have stimulated the non-pension individual to save for retirement. Some individuals have accumulated substantial massive individual account balances tax deferred or tax free. This is good.

But now the government needs to let the individual free up some of their money so the collective strength of the individual can benefit society once again.

An IRA or Roth IRA should be accessible for the individual house construction of a solar panel roof. Costs of solar cells are down and construction workers are looking for work. If the government would allow up to a $25,000 to $40,000 withdrawal from an IRA without a 10% penalty this would be the first step. Step two would be allowing the individual to: 1) withdraw the funds as a loan with payback at the selling of the house; 2) or instead of an ordinary gain charge a capital gain tax on the withdrawal.

If a loan then no monthly amounts would have to be returned to the IRS except monthly amounts received from utilities for excess electricity bought by utilities. In some utility districts the sell back amount might be higher due to the higher cost during daylight hours. The eventual selling of the house would then pay off the difference and the IRS would continue to accumulate wealth at that time with those funds.

If under a capital gain then 2008, 2009, and 2010 with an individual 15% tax bracket no capital gains tax would be paid for the cost of the solar cell roof. This would allow those in lower marginal tax brackets to truly withdraw funds and thus lower their personal costs of living. The lowering of costs may also help in freeing up other funds for IRA or retirement contributions. The higher than 25% tax bracket would enjoy a lower tax on the amount of the withdrawal by not having to pay a tax on the withdrawal of the funds for personal use at the ordinary tax rate but at the lower capital gains rate.

The third way would be the loan and capital gain rate combined. An amount above the 15% tax bracket would be considered a loan and the amount of the loan paid back as previously mentioned. For the amount in the lower tax bracket since capital gains have been calculated this amount would then not have to be paid back. Obviously the calculation would be done at the individual income tax preparation and filing time.

On the Form 1099-R, in Box 7 a code “C” for cell would be used. As with all withdrawals a payment from the trustee directly to the contractor would take place.

The advantage of this would be construction and electricians would get back to work. This collectively would be done in the southern states at first but the construction process might benefit the northern states from reduced solar cell costs. Later on with the lower costs thus this also would make solar cell roofs affordable in the northern states.

When money moves our economy moves. If money does not move our economy is stagnant.

In the meantime let’s drill, drill, drill. Let’s create an oasis for the animal kingdom and stimulate the “freely” using of electricity as previously worded on the mosaic outside of the Seattle City Light Building.