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Friday Financial Five–September 6th, 2013

Friday, September 06, 2013

 

Another state flirting with the elimination of income tax

In an effort to spur economic growth and smooth out yearly revenues, the legislature in North Carolina is considering getting rid of the state income tax. There are currently seven states that have no income tax, and North Carolina would focus on a consumption tax to fill the considerable hole left in the budget. The state is also drastically reducing its corporate tax rate from 6.7 percent to 3 percent over the next few years. In relationship to unemployment, North Carolina is tied with Rhode Island for 48th in the nation with a rate of 8.9 percent.

Minimizing the tax bite during retirement

Facing retirement means forecasting an income stream while also anticipating growing expenses. For many people, the retirement budget may span over 30 years. While health care costs continue to gain in the national consciousness, an area that retirees may not be as focused on is taxation. Retirees will face possible taxation on Social Security benefits, pension income, and IRA distributions. It’s important to prioritize funds that will supplement annuity-like income streams from Social Security or a pension. That means tapping bank accounts and Roth IRAs or borrowing from life insurance policies before creating a tax by distributing retirement funds. It’s a rising tax environment and that’s an expense that will need to be accounted for.

Italy takes a step to curtail high-speed trading

Across the sea comes a test case that may provide a blue print for the United States. In an effort to dissuade the practice of high speed trading and the possibility of another “flash-crash”, Italy has implemented a small transaction tax. In a truly horrible baseball analogy, high speed trading redirects value to the individual pitches at the expense of the game’s final score. It’s not what efficient markets are all about, and the tax is something that needs to be applied globally.

Auto leasing in vogue again

According to Experian, over one quarter of auto financers leased in the second quarter of 2013. The lease payment does historically provide a lower payment than buying, but it may not be the soundest financial option. Auto borrowing rates are historically low, and if the car is quality and holds value, the buyer has an asset at the end of the term. For those that like to trade in vehicles every few years, leasing can make sense. Just make sure to focus on the terms of the agreement and not the magic of the salesperson somehow reaching the desired monthly payment.

Good news from the Institute for Supply Management

Everyone gets really pumped for the ISM’s monthly report, and this month is no different. This report identifies executive spending on supplies for businesses and expansion is meant to project good things for the economy. The August report actually justifies elevated excitement, because the ISM index came in at 58.6 percent, the highest level on record since the index’s inception in 2008. Good news is always welcome given the last few years of dismal economic data, and these numbers suggest expansion in employment, production, and new-orders.

 

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

 

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