With the economy and the stock market on a continuing slide, readers are looking for relief. One wants to know when his stimulus check is coming, while another is wondering what to do with his 401(k). And a lot of readers say they wish we’d just stop writing about bad news.
Will the working people get a stimulus check with Obama like we did with Bush?
— Kenny, Macon, Miss.
Yes and no.
The latest, $787 billion economic stimulus package President Obama signed last month includes about $287 billion in tax cuts, if you believe the calculations Congress came up with. (It’s always hard to know exactly how the numbers will shake out).
But instead of mailing out a check for up to $600 per person and $1,200 for couples, as the Bush administration did, Congress and the White House decided to take a different approach. One big reason is that the evidence suggests that a lot of people didn’t spend the money but stashed it in savings or used it to pay off credit cards. There’s nothing wrong with that, but it’s not the fastest way to get the money flowing through the economy.
Instead, the new tax cuts are going to a variety of different people in various circumstances, or to those who buy or invest in certain things the government wants them to. That means some people will get checks mailed to them; others may see a bigger tax refund check, still others will get a break on their taxes.
For example, if you make less than $75,000 ($150,000 for couples), you’ll get a “refundable” tax credit of 6.2 percent of earned income, up to $400 per individual and $800 for couples in 2009 and 2010. If you owe taxes, you’ll get that amount taken off your tax bill. If you owe no taxes, the government pays the you credit. That’s why it’s called a “refundable” credit. (Note: Thanks to readers for pointing out that, for many wage earners, this will be spread out and show up as less withholding from your paycheck.)
If you collect Social Security, you’ll get a check for $250. The same goes for railroad retirees and veterans getting VA benefits. If you’re a state government retiree who is not eligible for Social Security, you also get a $250 check.
The plan lowers the floor on income to give more poor families access to the $1,000 child tax credit. If you make less than $3,000, the credit is refundable (you get a check).
Parents of college students get a $2,500 tax credit for tuition and other expenses if they make less than $80,000 (or double that for couples), but it’s not refundable.
If you buy your first home between Jan. 1 and Dec. 1, 2009, and make less than $75,000 (double for couples), you can get an $8,000 tax credit — also refundable.
The plan also includes tax goodies for people who save energy two ways. You get a tax credit (not refundable) if you fix up your home to make it more energy-efficient. And you get a non-refundable tax credit of $2,500 if you buy a "plug-in" electric car for at least $2,500 (the bigger the battery, the bigger the credit).
Small business owners also catch some breaks in the plan. If your company’s sales are less that $15 million a year, you get to write off losses in 2008 against five previous tax years. So if you paid taxes on those profits, you can subtract this years losses and get a refund on the taxes you paid on those profits. You can also write off to cost of buying new computers and other equipment more quickly.
And taxpayers will also get relief from the monstrous Alternative Minimum Tax — enacted decades ago to snare “rich” people that threatened to attack 24 million middle-class taxpayers in 2009. You’ll save that money when you pay your 2009 taxes. But the tax is so mind-numbingly complex, your accountant probably would be hard pressed to tell you how much you saved.
I have lost about 30 to 35 percent of money in my 401(k) due to (the) bad economy. Should I invest that money in different places now or should I leave it alone? I am 41 years old now and I do have time before retiring.
— L.N., Mentor, Ohio
This is actually more than one question.
If the recent market collapse has taught us all anything, it’s that the risk of individually managed retirement accounts is a lot greater than we were all led to believe. The conventional wisdom was that if you stashed money in these accounts, bought and held stocks “for the long term,” you’d eventually have enough money to retire comfortably even if you live to be 90. It turns out that wasn’t all that wise.
There are a lot of people who followed this advice who are going to have to put off retirement for years. Some may never be able to retire.
We have no idea where the stock market is headed. Neither does anyone else. It could go up from here or down. If you look back through history — not the last 30 years, where sell-offs were fairly reliably followed by rallies to new highs — you’ll see that the stock market has suffered long periods of short-term ups and downs that produced little or no long-term gains. The current collapse is on the order of 60 percent — worse than the roughly 50 percent pullbacks in 1973-74 and 2000-02 — and the worst since the Crash of 1929, when stocks fell by 90 percent. It’s worth noting that the market didn’t recover that 1929 peak until 1954. And the current collapse puts us back to 1997 - so far. So even if you had a "long-term" horizon of 10 years, you still lost money.
If you’re in your 40s and have “time to recover” you may want to leave whatever money you have in stocks where it is. Bear markets like this one always have rallies — some even look like the real thing. But there is also a case to be made that stocks are still overpriced. If earnings continue to fall, and investors begin pricing in risk more like they did in other major downturns like the Great Depression, stocks may fall further.
Finally, with all the damage to the global financial markets and economy, it’s hard to see how you’re going to miss a long-term, sustainable rally that doesn’t provide multiple opportunities to move back in stocks. So we’re finding it a little hard to believe financial advisers are still warning clients: “You’ve got to you be in the market to participate in rallies.”
It sounds an awful lot like another slogan you’ll hear on Wall Street: “You’ve got to be in it to win it.”
That’s the slogan for the New York State Lottery.
Is there any benefit whatsoever in the media endlessly reporting this gloomy material ? Might it be possible that such reports themselves contribute — even in some small way — to the consumer's malaise ?
— A B., Rocky Mount, N.C.
We’re getting a lot of mail like this these days. Here a few things to keep in mind:
- You don’t have read these stories. As someone who covers the business beat full-time, I personally like to take a “news holiday” from time to time. Get lost surfing YouTube, watch some "American Idol" reruns on the DVR, take your 10-year-old niece for a hike. We all need a break from bad news.
- Would you watch a weather channel that didn’t warn you about a bad storm? Tornadoes and hurricanes are terrifying: Should the National Weather Service not tell us when they’re coming? Or where they’re going to hit?
- It’s not our job to report things just to make people feel better. If the doctor determines you’ve got a curable disease, but the cure might not work, would your rather not hear about it? Aren’t you better off knowing the truth? Is the doctor behaving responsibly by deciding for you what you should know — and what you shouldn’t?
- Finally, if journalists did adopt a “no bad news” policy, how would you know they weren’t withholding other important information? For that matter, how would you know whether anything else you read was true?