Opinion

John Wasik

5 ways income inequality happened, and will continue

Oct 28, 2011 15:14 UTC

By John Wasik

(Reuters) – As if on cue for an Occupy Wall Street commercial, the latest Congressional Budget Office report highlighted the large crevasse between the upper 1 percent of U.S. households and the rest of us.

When it comes to income inequality, this is what U.S. politicians should be digesting now. While it’s hardly a major revelation that for the top 1 percent of earners real after-tax income rose 275 percent between 1979 and 2007, the top 20 percent made more in after-tax income than the remaining 80 percent. That’s quite a difference since the lowest-income group’s median income only rose 18 percent.

Income inequality couldn’t be more of a mainstream issue as some 70 percent of Americans surveyed want wealth shared more equally.

The reasons for the growing disparity, which the CBO, without irony, measured by an increasing “Gini coefficient,” were buried deep in the report. It’s how income was taxed that allowed the ultra-wealthy to keep more of what they earned compared to middle- or lower-class Americans.

INVESTMENT INCOME EARNERS ARE TAXED LESS

Most lower- and middle-class earners make their money from wages, which are subject to Social Security, Medicare, federal and state taxes. But income from businesses, capital gains and dividends may be taxed at lower rates. In the CBO study period, the share from capital gains and business income increased, meaning upper-income families reaped greater after-tax benefits just from the kinds of non-wage income they reported.

Meditations on money mania: Why we gorge on the financial buffet

Oct 24, 2011 14:41 UTC

Are you a money maniac? While finishing up Michael Lewis’s “Boomerang,” his latest book on the financial meltdown, I was intrigued by a few of his observations on a cultural and psychological malady.

Since some of my academic training is in psychology, I’ll take a stab at what I think is going on. We spend (and eat) too much because the culture encourages it at every turn, but we have the ability to resist temptation. We’re hardwired to do the wrong thing, yet can still make rational decisions.

There’s also a part of the brain that Lewis didn’t really explore in much depth. I’m not sure what it’s called, but it involves conflating risk with the likelihood of financial success. Behavioral economists have many descriptions of these miscues. One might call it intentional and persistent denial.

Big banks want your big bucks, but ask questions

Oct 21, 2011 15:52 UTC

NEW YORK, Oct 21 (Reuters) – Despite receiving some $4.7
trillion in taxpayer bailout funds, the largest of them are
moving more towards wealthy customers with assets to invest and
away from low-margin checking accounts. That doesn’t mean you
should invest with them, though.

The banks side of things is that that want well-heeled
wealth management or brokerage clients, not people who are
writing small checks to pay bills. For instance, Bank of
America , which recently announced a $5-a-month
debit-card fee, said about two weeks later that it was planning
to nearly double the number of “Financial Solutions Advisors”
for its mass affluent clients.

The growing array of banking fees — common at most big
banks now — are a red herring for bankers’ larger agenda of
generating more income from advisory and brokerage accounts, as
brokerage accounts have the potential to generate hefty
commissions and advisory fees.

Big banks want your big bucks, but you have other options

Oct 21, 2011 14:27 UTC

Big banks just don’t want to sweat the small stuff.

Despite receiving some $4.7 trillion in taxpayer bailout funds, the largest of them are moving more towards wealthy customers with assets to invest and away from low-margin checking accounts. That doesn’t mean you should invest with them, though.

The banks side of things is that that want well-heeled wealth management or brokerage clients, not people who are writing small checks to pay bills. For instance, Bank of America, which recently announced a $5-a-month debit-card fee, said about two weeks later that it was planning to nearly double the number of “Financial Solutions Advisors” for its mass affluent clients.

The growing array of banking fees — common at most big banks now — are a red herring for bankers’ larger agenda of generating more income from advisory and brokerage accounts, as brokerage accounts have the potential to generate hefty commissions and advisory fees.

5 tips to surviving a bear market

Oct 18, 2011 15:06 UTC

Do you need a special kind of financial adviser to deal with a bear market?

Few will debate that the months ahead will be challenging, and that the extreme market volatility will continue. There are a number of steps you can take with your adviser — or on your own — to weather these changes.

The first thing to consider is that the cards are lining up for the U.S. and European economies to backslide into recession. The Economic Cycle Research Institute is calling for two quarters of negative growth. The European sovereign debt crisis is like a wounded beast. The Federal Reserve doesn’t seem to be able to help, despite lowering short and long-term interest rates.

But a more telling indicator might be the gold-to-copper ratio, which is diligently tracked by Jack Ablin, U.S. portfolio strategist at Harris Private Bank in Chicago.

Analysis: Tactical asset allocation might become your new normal

Oct 17, 2011 18:13 UTC

NEW YORK (Reuters) -Market volatility is like a headache that hangs on. The cure may lie in shifting your mind from keenly focusing on risk instead of returns.

For many, this is an obvious no brainer, but it involves much more than simply shifting into cash, bonds or gold. What if you don’t want to exit stocks entirely? Then you may need what money managers call tactical asset allocation.

Instead of a long-only, hold-on-for-dear life approach of traditional investing, tactical planning involves shifting in and out of assets as market conditions dictate. In a turbulent market, there are several asset classes that can buffer stock downturns that can be found in several off-the-shelf mutual funds.

Tactical asset allocation might become your new normal

Oct 17, 2011 16:10 UTC

Market volatility is like a headache that hangs on. The cure may lie in shifting your mind from keenly focusing on risk instead of returns.

For many, this is an obvious no brainer, but it involves much more than simply shifting into cash, bonds or gold. What if you don’t want to exit stocks entirely? Then you may need what money managers call tactical asset allocation.

Instead of a long-only, hold-on-for-dear life approach of traditional investing, tactical planning involves shifting in and out of assets as market conditions dictate. In a turbulent market, there are several asset classes that can buffer stock downturns that can be found in several off-the-shelf mutual funds.

Occupy colleges? How to shut down student debt

Oct 14, 2011 20:16 UTC

Members of the Occupy Wall St movement hold signs aloft while demonstrating. REUTERS/Lucas Jackson One of the more compelling issues to emerge from the Occupy Wall Street movement is subject of crushing student debt.

College financing has gotten to be too onerous and complicated, so it’s difficult for families to negotiate the process and, as a result, it’s hobbling graduates’ attempts to live normal lives. Congress has largely ignored these Americans, though, as it focuses on the national debt and the Tea Party agenda.

There’s been a sharp uptick in student loan defaults — the highest rate in a decade — as more students come out of college an average $24,000 in debt, yet can’t find jobs.

What the Occupy Wall Street crowd should be saying

Oct 10, 2011 16:36 UTC

A demonstrator from the Occupy Wall Street campaign stands with a dollar taped over his mouth as he stands in Zucotti Park near the financial district of New York September 30, 2011. REUTERS/Lucas Jackson Are the thousands who have taken to the streets in the “Occupy Wall Street” (OWS) protests a bunch of anarchistic slackers or do they have a point?

If they’re protesting their personal financial situations or prospects for the American Dream, they have plenty to howl about, but the “99 percent” crowds could use some message management.

When I recently visited the Chicago OWS spin-off  in front of the Federal Reserve Bank, they were decrying everything from predator drones to corporations in general.  There were fewer than 100 people there, although their theme was similar to the New York demonstrations.

Analysis: If you want lower property tax rates, just ask

Oct 3, 2011 19:29 UTC

NEW YORK (Reuters) – For years, the mantra of American homeownership was to count on home appreciation. Every year like clockwork the value went up and houses were a growing source of wealth.

Now, more than three years after the housing market imploded, the tune is different. It may make sense for you to prove that your home’s value has dropped so you can file for reduced property taxes.

This is the time of the year when local assessors send out notices of your home’s assessed value. Note, however, that this is not your real market value. It’s a base value that’s used to calculate your property taxes. If you want to reduce your real estate taxes, start with paring your assessed value.

  •