Friday Financial Five – March 13, 2015

Friday, March 13, 2015

Dan Forbes, GoLocalWorcester MINDSETTER™

Banks struggle with capital requirements

According to the WSJ, four of the biggest banks had trouble passing the stress test for 2015, Bank of America was given conditional approval to either buy back stock or increase dividends due to weakness in loss reporting. The other companies forced to revise their plans were Goldman Sachs, J.P. Morgan Chase, and Morgan Stanley. For another perspective on the amazing level of oversight financial companies now face, here’s an interesting chart from the SEC.

Looking at state migration and taxation

Last year, the NY Times compiled a chart of migration in the United States using 2012 numbers. It’s interesting to compare this map to Kiplinger’s state evaluations for tax friendliness, in this case for retirees. Kiplinger’s most friendly states tax-wise include Florida, Nevada, and Arizona. For Florida, almost two thirds of their inhabitants come from outside the state, including 23% from outside the country. Nevada has 75% of its people from outside, including 19% from California. For Arizona, over 60% were born outside the state. Taxes, along with other factors, may play a role in the high level of migration these states have experienced.

Another mortgage debt relief extension possible

There is again legislation to provide relief to homeowners who are underwater on mortgages. When a borrower works with the bank to sell a home for less than the mortgage balance, the difference between sale price and outstanding mortgage is taxable to the borrower as earned income. The original Mortgage Debt Forgiveness Relief Act was signed in 2007 and has been extended various times, including most recently in December of 2014. Legislation in the House and the Senate aims to extend relief through the end of 2016.

Consider the Roth conversion option

The April 15th deadline to contribute to IRAs for 2014 is roughly a month away. There are income limitations for both single filers and those who file jointly. For those that surpassed the MAGI limit last year, it may make sense to contribute to a nondeductible IRA and convert that money to a Roth. It’s a few steps, but in the end, the Roth benefits might be worth it. The absence of income limitations on conversion is something that Congress may eventually remedy.

Senator Rubio’s proposed tax plan

Simplifying a complex tax code would seem to be a good way for presidential hopefuls to ingratiate themselves to many voters at once. Senator Marco Rubio, along with Senator Mike Lee, has presented a new plan involving two tax rates. Income up to $75,000 would be taxed at 15% and income above that level would be taxed at 35%. All tax deductions, except for mortgage interest and charitable contributions, would be eliminated. Business income would be taxed at 25%. The plan would end estate, capital gain, and dividend taxation. Republicans are going to balk at the $75,000 threshold and removal of tax breaks, while Democrats won’t like the end of estate taxes. In the end, the plan as currently constructed would be a huge tax decrease and most in congress would like to see changes be revenue neutral.

Dan Forbes is a regular contributor on financial issues. He is a CFP Board Ambassador. He leads the firm Forbes Financial Planning, Inc in East Greenwich, RI and can be reached at [email protected].

Related Slideshow: Massachusetts Business Rankings

See how Massachusetts stacked up.

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WalletHub

Massachusetts has 2015's 28th highest insurance premium penalties for high risk drivers, according to a WalletHub report.

Mass is behind Colorado and New Mexico who come in at 26 and 27 spots respectively while Mass is ahead of Tennessee and the District of Columbia who rank 29 and 30 respectively.

Massachusetts ranks 14th overall in the category of DUI conviction annual premium increase with an amount of $756.

Massachusetts ranks 20th overall in the category of speeding over 20 mph annual premium increase with a total of $261 while ranking 21 overall in the category of two accidents annual premium increase with a total of $1,364.

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WalletHub

Massachusetts has been ranked as the 5th most eco-friendly state in the country, according to a recent study by WalletHub.

Mass ranks tenth in environmental quality and fourth in Eco-Friendly Behaviors landing them in 8th overall.

Mass is behind Minnesota and New York who are in the fourth and third spots respectively, and in front of Washington and New Hampshire who come in at the six and seven spots.

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The Economist

Small Business Friendliness Grade: D+

The Economist grades states on an A+ to F grading scale for its small business climate. Massachusetts ranks near the bottom of the nation, joining New Mexico and New York in receiving D+ grades. 9 states scored worse than a D+ in the Economist rankings.

Overbearing bureaucracy and excessive licensing is stifling small business in America.

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CNBC

#25 CNBC

CNBC ranks each state in cost of doing business, economy, technology and innovation.

Massachusetts' unemployment rate as of May 2014 was 5.6 percent. The state added 9,100 jobs in the month of May.

Forbes

#13 Forbes

Forbes ranks each state in business costs, economic climate, and growth prospects.

The most damning in the commentary:

Massachusetts’ business costs, including labor, energy and taxes, are the highest of the 48 contiguous states—only Hawaii is higher—at 20% above the national average.

ChiefExecutive.net

#47 ChiefExecutive.net

ChiefExecutive.net ranks each state in taxations and regulations, workforce quality, and living environment.

The most damning in the commentary:

Taxation and regulation are always the key barometers. Massachusetts and Oregon are the worst.

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Tax Foundation

#25 Tax Foundation

Tax Foundation ranks each state in corporate tax rank, sales tax rank, and unemployment insurance tax rank.

Massachusetts ranked #49 in unemployment insurance tax.

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Wallet Hub

#10 Wallet Hub

Wallet Hub ranks each state in ROI rank, state tax rank, and overall government services.

Massachusetts ranked #49 in worst roads and bridges, but ranked #7 in overall government services.

ALEC

#41 ALEC

ALEC ranks each state in economic performance and outlook.

Although Massachusetts ranked low in economic performance, a forward-looking forecast is based on the state’s standing in 15 important state policy variables. Some of these variables include top marginal personal income tax rate and sales tax burden.

Kauffman Foundation

#29 Kauffman Foundation

Kauffman Foundation ranks each state in entrepreneurship.

Entrepreneurial activity generally is highest in Western and Southern states
and lowest in Midwestern and Northeastern states.

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Free Enterprise

#18 Free Enterprise

Free Enterprise ranks each state in performance, exports, innovation + entrepreneurship, business climate, talent pipeline, infrastructure.

Massachusetts's reputation as a hotspot for science and technology endures in this year's rankings. The commonwealth is a center for STEM jobs and university research and development, ranking 4th and 2nd, respectively, in those two categories. It also ranks 6th as a center for high-tech establishments. Massachusetts is taking aggressive steps to bolster economic activity with high-impact university-industry R&D projects and new tools for tech-based startup companies.