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That said, I think a part of a related problem, not with pensions, but with reporting on them that you allude to, is that most journalists writing about the issue approach it from a political standpoint rather than an accounting/finance standpoint. Often if I read articles focused on these topics outside of business/financial publications, and it's pretty clear they spoke to some expert on the topic they're writing about and understood very little of what that expert said.
Good point. I was once taskes with writing about a technical topic. I had to ask the interviewee to explain something to me like, 10 times. I apologized profusely for asking the question so many times, but I needed to be able to explain it to someone else. The audience was within the same field, but as a writer, I feel you have to be able to explain a topic to someone with no knowledge at all. This is why journalism is crap nowadays. Any objectivity (and really, nobody is totally objective) is gone.
but I needed to be able to explain it to someone else. The audience was within the same field, but as a writer, I feel you have to be able to explain a topic to someone with no knowledge at all.
Yeah, this is almost more of the issue than the writer misunderstanding. Not everyone will understand actuarial tables, projected liabilities coming due in a single year, assumptions about returns, interest rates, discount rates, mortality tables, etc.
It's simpler to point out the big number (which in this case is a bit scary and does keep getting bigger), but there are more people retiring and living longer than in the past.
I want real, well-defined numbers exactly because until we have them, it's impossible to have a discussion that goes further than "pension obligations are in bad shape." Yeah, they are. But if the real number is $140,000 per household, the options we have to address the issue are quite different than if the real number is $35,000. When they come due is also important to the discussion - if most of the shortly hits us in 2040 it makes the number bigger, but broadens our options to address the problem.
NOBODY doubts there is a real problem with pensions and, to a lesser extent, other debt. But where are the newspaper articles laying out current actuarial assumptions and then, year-by-year descriptions of what the real obligation is. Not what the State has agreed to put into the funds, but the actual obligations per year. Then a column showing the current funding plan by year. And a couple more columns showing the impact of various proposals to address the problem. An article like that would be a lot of work, but it would go a very long way towards educating the public well enough to have informed conversations.
Posting scare pieces with big, unexplained and undefined numbers does worse than nothing for the conversation.
I probably won’t have time to do the 5 minutes of research digging up the source materials and 15 minutes it will take me to walk you through Moody’s rating process and the other underlying contentions in the graph until this weekend.
I probably won’t have time to do the 5 minutes of research digging up the source materials and 15 minutes it will take me to walk you through Moody’s rating process and the other underlying contentions in the graph until this weekend.
Hold tight.
So what you are looking for is the methodology of Moody’s Adjusted Net Pension Liability.
I haven’t been able to find it in the 10 minutes I’ve spent looking at this, but to question whether it doesn’t assume some reasonable level of compounding is absurd. Actually, the reason it’s approximately twice as large as the official city projections is based on investment performance assumptions. As I said in my initial post, even a curorary look at the recent history (shocker!) shows the exact opposite; projections, of course, turn out to be far rosier than reality, although in this case it’s primarily due to politicians promising ever more into the pensions despite robust tax-driven asset growth.
So if you are really skeptical of the compounding assumptions you have to find Moody’s ANPL methodology and drill down into why it’s less optimistic than the city projections. I doubt that’s an interesting question for anyone over the age of 25 who’s read the paper once a week, but knock yourself out.
I can’t imagine even a theoretical reason Moody’s would stand to gain anything by being biased toward a negative outlook. If you are familiar with the recent history of ratings agencies you know the problem has been the opposite phenomena.
5% of 10 billion hurts a lot less than 10% of $40,000. Maths. Illinois has old money and if they go anywhere, it'll be to a state where they'll pay even less taxes. Sales tax is pennies to these people. The folks complaining about Illinois taxes are middle income people. Poor people are used to being poor and the truly wealthy don't notice these changes. You feel the difference - they don't.
ETA: Also...are they paying income tax? Not sure about that. If wealthy people are good at anything, it's avoiding paying taxes. Sometimes illegally...but there are plenty of legal loopholes for them to exploit. These folks just don't have the same money concerns as you and me. Sorry.
I call bs. You think the little cash shops pay the full amount of income tax and sales tax? How about the beggers...are they claiming that as income? You think any waiter/waitress/bartender is dutifully counting down and claiming 100% of their tips? You think farmers markets are churning out cash receipts? How about when a friend hires you to do some labor of some kind? Are you issuing household help for babysitters? Are you sending in use tax if a store doesn't charge you sales tax on something?
Wealthy people are more likely to take legal measures to reduce taxes and that generally involves limiting future options for cash to be used. It's also more likely that it's simply sensible and others don't understand what is happening. Poor people are more likely to illegally try and avoid them because the amounts are small enough and compliance levels too ridiculously low that there's little risk of actually getting caught.
The truly wealthy do notice the changes. You see what happened when Washington State passed laws at companies with large revenues (that was basically only Amazon?). They started shopping for HQ2. Chicago got Boeing on something similar.
Chicago's financial problems are not with revenue compliance. Helen Keller, dead and gone, can sense what Chicago's financial problem is, and it's on the expenditure side. Unless the machine reforms itself a bit, this will only get worse. Increasing revenue won't make it one whit better.
Is what makes me so angry about this situation is that us younger people are trying to save up money to buy a house in a high priced real estate market (pretty much the entire country is this way), yet our tax dollars are going to fund some retiree with a 3% annual raise living on a beach in Florida.
These a-holes took out loans with the names of their children, grandchildren, and great grandchildren on the forms.
This system was destined to fail from the start. Everyone knew it, except for the workers who were made promises and didn't realize they couldn't ever be kept.
I call bs. You think the little cash shops pay the full amount of income tax and sales tax? How about the beggers...are they claiming that as income? You think any waiter/waitress/bartender is dutifully counting down and claiming 100% of their tips? You think farmers markets are churning out cash receipts? How about when a friend hires you to do some labor of some kind? Are you issuing household help for babysitters? Are you sending in use tax if a store doesn't charge you sales tax on something?
Wealthy people are more likely to take legal measures to reduce taxes and that generally involves limiting future options for cash to be used. It's also more likely that it's simply sensible and others don't understand what is happening. Poor people are more likely to illegally try and avoid them because the amounts are small enough and compliance levels too ridiculously low that there's little risk of actually getting caught.
I can't argue about the issues occurring in Illinois, but I don't think poor or working class people have as much of a chance to lower their tax bill as someone wealthy. Most working class or poorer people are getting a W2 (or 2 if they work multiple jobs) and a certain amount of taxes are withheld. They're likely filling out their own tax return or overpaying a place like H&R Block or Jackson Hewitt to spend 30 minutes filling out a basic return for them. It's really difficult to avoid taxes this way.
I haven't worked in a restaurant and therefore don't know how their payroll systems work, but many customers seem to just add tip to their bill these days and don't leave cash on the table. Do many restaurants still pay out all tips in cash at this point? I'm seriously curious and don't know.
Many businesses that set up at farmers markets, fairs, street fests, etc now use an electronic payment system and have some sort of ipad-type set up to charge someone's credit card, in my experience as a customer. Now, perhaps they expense some things to their business that's actually personal and can be argued as a business expense.
I would imagine someone who owns their own business or is an independent contractor is more likely to charge non-business type expenses to their business and can make the argument it's business related even if it's often used for personal - cell phone, car and related auto expenses, home internet, meals and entertainment, publications and professional group memberships, etc. I would imagine those with more money running their own business tend to take advantage of those things than someone who makes $40k a year. They can more likely pay for the advice of an accountant or attorney to advise them on such things. Wealthy people likely participate and legitimate tax planning measures by deferring income, offsetting income by taking losses from sale of stock, in convenient years, etc. as you say, but they're also more likely to own one or more businesses that allow for deducting expenses.
I can't argue about the issues occurring in Illinois, but I don't think poor or working class people have as much of a chance to lower their tax bill as someone wealthy. Most working class or poorer people are getting a W2 (or 2 if they work multiple jobs) and a certain amount of taxes are withheld. They're likely filling out their own tax return or overpaying a place like H&R Block or Jackson Hewitt to spend 30 minutes filling out a basic return for them. It's really difficult to avoid taxes this way.
They are not going to get it by simply inputting their W-2 and doing nothing else. No. However, they could actually not only defer income in a 401K or IRA but also get paid a savers tax credit simply for not spending all that they earn. There's an earned income credit. There's a child tax credit. In California we have a renters credit. Most deductions have a phase-out based upon income. There's charities. At the end of the day, most W-2 filers are getting a refund and that's just from above board work. We now live in a gig economy. Have someone get those gigs for you and there's likely a tracking system. Take the follow-up for cash...not so much.
Quote:
Originally Posted by fusillirob1983
I haven't worked in a restaurant and therefore don't know how their payroll systems work, but many customers seem to just add tip to their bill these days and don't leave cash on the table. Do many restaurants still pay out all tips in cash at this point? I'm seriously curious and don't know.
Well, it works like this. The waitstaffer essentially orders all of your food and at the end of the day has to pay for it. Most modern systems will now conveniently add up all money that was charged on credit card, but the remainder they need to pay in cash collected during the day. Then they need to tell the system how much they made in cash tips. Now for a cash paying customer on a service, a sophisticated waitstaffer could potentially underreport tips and nobody would be the wiser. Get enough of those and a sophisticated middle manager might decide to under-report revenues in total to skim some of the cash....but whoever owns the brick and motor store might be a little more hesitant to participate in this. In the meantime, our skimming employee group may also qualify for assistance on the government dole because they make so little money.
Quote:
Originally Posted by fusillirob1983
Many businesses that set up at farmers markets, fairs, street fests, etc now use an electronic payment system and have some sort of ipad-type set up to charge someone's credit card, in my experience as a customer. Now, perhaps they expense some things to their business that's actually personal and can be argued as a business expense.
You're not suggesting for a second that cash doesn't still buy you whatever you need are you? The Feds haven't gotten that good yet. They're trying though.
Quote:
Originally Posted by fusillirob1983
I would imagine someone who owns their own business or is an independent contractor is more likely to charge non-business type expenses to their business and can make the argument it's business related even if it's often used for personal - cell phone, car and related auto expenses, home internet, meals and entertainment, publications and professional group memberships, etc.
Why wouldn't they? I consult. I write-off my cell phone. If I had a day job, I would actually be given a phone, hence nothing to write-off. When you are in a trade that you need to provide your own tools, then you absolutely do need to write them off. Stop and think though...who comes out ahead. Someone that pays actual money for their tools or someone who gets their tools provided for but still gets a standard deduction? Regardless of which side, the big deductions are not in the little personal write-offs.
Quote:
Originally Posted by fusillirob1983
I would imagine those with more money running their own business tend to take advantage of those things than someone who makes $40k a year. They can more likely pay for the advice of an accountant or attorney to advise them on such things. Wealthy people likely participate and legitimate tax planning measures by deferring income, offsetting income by taking losses from sale of stock, in convenient years, etc. as you say, but they're also more likely to own one or more businesses that allow for deducting expenses.
There's absolutely no income bracket restricting Schedule D on the gain or loss on the sale of stock. But here's the advice....you really don't want to reduce your taxes this way....and you're limited to $3K a year....on money you truly lost. There's no magic there. It's an investment that went south on you. Tax loss harvesting is basically a feel good way for someone to not feel so bad about losing their money. Even then...anyone can do it. It's not secret. H&R Block I'm sure has no problem with a schedule D. Deferring income doesn't mean that you've avoided paying taxes. It means that you don't have to pay them this year, but will have to pay them sometime in the future. The biggest deferral out there is participating in a 401K retirement savings plan. When you eventually get that money in retirement, you're going to pay tax on it, but the government is going to let you use that money for your own (and frankly theirs as well) benefit. Sometimes its disfavorable. I pay my own health insurance...out of income my business makes. A worker doesn't even have to claim that they received it and gets to pay their share pre-tax.
There are games companies sometimes play with taxes, but the true games generally have a way of coming back to haunt companies. Passive losses have been established for awhile, there are rules governing transfer taxes, the tax shelters are all busted up now...you can delve into solar credits if you're crazy, but that has its own risks. Yet the biggest two are ESOP businesses that generate tax free retirement shares for employees and dying...while handing a stepped up basis to the next generation. Yet even with that, the ending tax rates for the wealthy are much higher than those of the average worker. Businesses that let tax guidance make their decisions seldom have business for long.
The fair share crowd has been out there a long time. They get a tidbit like GE didn't pay any taxes one year....but sometimes forget that its because they lost a ton of money. The IRS framework is pretty robust. This isn't Greece with entire islands not paying a dime in tax. This is an expenditure problem. Whether the city will cut some of the patronage over the stuff actually getting a job done...that's where you start getting into the heart of the matter.
They are not going to get it by simply inputting their W-2 and doing nothing else. No. However, they could actually not only defer income in a 401K or IRA but also get paid a savers tax credit simply for not spending all that they earn. There's an earned income credit. There's a child tax credit. In California we have a renters credit. Most deductions have a phase-out based upon income. There's charities. At the end of the day, most W-2 filers are getting a refund and that's just from above board work. We now live in a gig economy. Have someone get those gigs for you and there's likely a tracking system. Take the follow-up for cash...not so much.
Those are all legal measures within the tax code, except for what you're calling the gig economy. EITC? You need to be pretty low income to get that. If you're single with no kids and your AGI is under $15,270, you get $519. I'm sure that $519 means far more to them than to you or I. That person probably isn't giving much to charity or contributing much to a 401k. Child tax credit - that's important even for someone that isn't low income. I think there's a reason Marco Rubio fought pretty hard to make that $2k in the tax reform law. If it wasn't, there would be a lot of middle class or upper middle class people with increasing tax bills this year probably. If someone whose sole income comes from a W-2 and takes a standard deduction gets a refund, it's because of how they filled out their W-4 probably, or their payroll department doesn't know how to properly calculate withholdings.
Regarding the gig economy,I don't know who those people are, other than say freelance artist types or people who might due manual labor for a few hours or something. I've known people who dog sit or drive for Uber. That income is tracked via an app. Maybe there's teenage babysitters out there who watch someone's kids for a couple hours a day after school and they get paid cash. I mean, yeah they should report that on a tax return, but say they have an income of like $2k per year doing that and they don't report, well that's not even worth discussing.
Quote:
Originally Posted by artillery77
Well, it works like this. The waitstaffer essentially orders all of your food and at the end of the day has to pay for it. Most modern systems will now conveniently add up all money that was charged on credit card, but the remainder they need to pay in cash collected during the day. Then they need to tell the system how much they made in cash tips. Now for a cash paying customer on a service, a sophisticated waitstaffer could potentially underreport tips and nobody would be the wiser. Get enough of those and a sophisticated middle manager might decide to under-report revenues in total to skim some of the cash....but whoever owns the brick and motor store might be a little more hesitant to participate in this. In the meantime, our skimming employee group may also qualify for assistance on the government dole because they make so little money.
Yes, I get that - with cash you can underreport or pocket it. Is it widespread that middle managers are risking their own job and reputation to help waitstaff get more tips by underreporting revenue for tips paid via card? That would be incredibly stupid of them.
Quote:
Originally Posted by artillery77
You're not suggesting for a second that cash doesn't still buy you whatever you need are you? The Feds haven't gotten that good yet. They're trying though.
I never said that, just that I've noticed more are also taking electronic payment. In the past 5 years, the only people I've had specifically request cash payment from me are cab drivers.
Quote:
Originally Posted by artillery77
Why wouldn't they? I consult. I write-off my cell phone. If I had a day job, I would actually be given a phone, hence nothing to write-off. When you are in a trade that you need to provide your own tools, then you absolutely do need to write them off. Stop and think though...who comes out ahead. Someone that pays actual money for their tools or someone who gets their tools provided for but still gets a standard deduction? Regardless of which side, the big deductions are not in the little personal write-offs.
I'm not saying you shouldn't write off legitimate expenses for your business. What I'm saying is someone could very well have thousands of dollars in expenses that can be seen as personal and they write them off. If someone sets up a business, an LLC for instance, (whether run by someone wealthy or not) and all that income gets passed onto the person is their K-1 and that's what they need to then report on their personal return, then they're reporting income net of all those expenses from the business. They still get to take a standard or itemized deductions on their personal return. Now in other instances, say a realtor who maybe gets a 1099 and writes off those expenses, you may have an argument because their 1099 isn't reporting their income net of expenses.
I think you're overestimating how many people with a day job get a free cell phone to use, car, etc. The guy/girl making $40k a year off a single W-2 probably doesn't get to do that, and he can't write it off like you can. He probably needs a car or some other transportation to get to work though and his payments, gas, insurance etc. doesn't contribute to lowering his taxable income. He has to pay for that with after tax income.
Quote:
Originally Posted by artillery77
There's absolutely no income bracket restricting Schedule D on the gain or loss on the sale of stock. But here's the advice....you really don't want to reduce your taxes this way....and you're limited to $3K a year....on money you truly lost. There's no magic there. It's an investment that went south on you. Tax loss harvesting is basically a feel good way for someone to not feel so bad about losing their money. Even then...anyone can do it. It's not secret. H&R Block I'm sure has no problem with a schedule D. Deferring income doesn't mean that you've avoided paying taxes. It means that you don't have to pay them this year, but will have to pay them sometime in the future. The biggest deferral out there is participating in a 401K retirement savings plan. When you eventually get that money in retirement, you're going to pay tax on it, but the government is going to let you use that money for your own (and frankly theirs as well) benefit. Sometimes its disfavorable. I pay my own health insurance...out of income my business makes. A worker doesn't even have to claim that they received it and gets to pay their share pre-tax.
I know how the losses work, they're legal and that nobody wants to lose money on stock. I was stating that wealthier people can do it, again it's legal and I am aware and stated that previously. I also know it's a non-discriminatory law based on income. The only difference is poor people don't have extra money laying around to put in the stock market. I was just pointing out the difference among how wealthier people can pay for advice on how to lower their tax burden when possible, and this is an example of something done legally.
Quote:
Originally Posted by artillery77
The fair share crowd has been out there a long time. They get a tidbit like GE didn't pay any taxes one year....but sometimes forget that its because they lost a ton of money. The IRS framework is pretty robust. This isn't Greece with entire islands not paying a dime in tax. This is an expenditure problem. Whether the city will cut some of the patronage over the stuff actually getting a job done...that's where you start getting into the heart of the matter.
I agree with you on the GE thing. It's a headline grabber. They took a huge loss on GE capital and the consolidated company reported a loss on the year and thus they rightfully paid no taxes. Most people don't understand that.
When it comes to tax fraud, the place where the IRS is easiest to hit is in the cash supply chain.
Say you go anywhere and pay cash for something. Restaurant, store, tutor, child-care, store credit card in person....what you set up is the potential...the open door...for tax avoidance. Everytime you use your credit card, that's getting reported to an entity on a 1099-K. Cash isn't traced like that...so what the Feds have done is make it difficult to spend large sums of cash. You can't wheel up to a home closing with a wheelbarrow of cash. If you buy a car with cash, you get reported. If you make cash deposits in a bank, they are reporting this on to the government. The government is getting very good at bringing this into play.
Say I run Shadyco corner store. I'm not going to allow for credit card transactions below a threshhold of say $25. Now, perhaps my average register sale in truth is $20. Life is good. But I have a problem. If I want to under-report my revenue (which is where all the good tax avoidance schemes are, not on the deduction side) what can I do with the cash? If I take it all to the bank each day, the gig is up. I'll be caught. So, maybe I reach out to my suppliers and I start paying them in cash. Now, I may lose the deduction, but now my gross margins still look good, and the supplier is happy because they made their sale and they know I'm not sending them a 1099. Still, what are they going to do with the cash?
Well, here's a thought...how about I pay you minimum wage on paper, and I pay you the rest in cash. If anyone asks, you go off the W-2 number. In the meantime...you're going to qualify for all kinds of government benefits. Now as long as I'm not a large employer, I can get away with not paying for health insurance plans and everything else....or maybe I offer them at a ridiculous rate....but you'll go to the state boards instead. Essentially the supplier gets cheaper labor. The worker pays less (if any) tax.
Now, to work for income tax, you can't have a different number for sales tax...so that gets hit as well.
Suddenly Shadyco corner store has everything in place to put 7-11 across the street at a disadvantage. The model isn't scalable. By its very limitation based nature it can only be used by small poor businesses looking to compete against giant chains. Because once you get to a certain size, you get the tax authority attention, and you never lose it. So the rich will delay taxes until someone can get elected that will lower rates, and then they have to decide....take the income now...or bet on further delays and take the opportunity then. In the case of Apple's overseas cash hoard...they really should have used W's handout. It was more lucrative for them then Trumps. But that's the gamble.
Now, you mentioned the only place that has asked for cash recently was a taxi. An alternative taxi service certainly isn't a new idea....but why do you think all of the local governments were suddenly willing to just not enforce their local medallion requirements and let all of these ride-sharing apps in? One of the reasons are those are paid with credit card and can be traced. Many of these app based payment systems could have been in earlier, but the government wants to move more of the grey economy into the white of the black and white. At the same time, they are making cash USD less lucrative to hold. This encourages banking deposit formation and also decreases grey economy volume.
On the flip side, it puts the grey economy providers in recession...making prices even cheaper in the short term. Will it continue long enough to eventually decrease the number of providers? Or is the number of providers a fixed supply based upon criminal history, lack of citizenship etc. Time will tell.
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I apologized profusely for asking the question so many times, but I needed to be able to explain it to someone else. The audience was within the same field, but as a writer, I feel you have to be able to explain a topic to someone with no knowledge at all. This is why journalism is crap nowadays. Any objectivity (and really, nobody is totally objective) is gone.
