Reuters Money

Tax deductions are popular, but penalties may work better

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The National Zoo's baby panda Tai Shan munches on a carrot in the Giant Panda Habitat of the new Asia Trail area at the zoo in Washington October 11, 2006. REUTERS/Molly RileyWhen making tax policy, there’s a choice between carrots or sticks: Does the government give taxpayers credits or deductions for doing the right thing (buying their homes, giving money to charity, not emitting greenhouse cases) or penalize them for doing the wrong thing?

Brian Galle, who is on leave as an assistant professor at Boston College Law School and currently a fellow at the Urban Institute in Washington, DC, has been analyzing those choices, and come to a surprising conclusion: Expenditures may be politically expedient, but penalties would often be preferable for fiscal policy.

In his forthcoming paper in the Stanford Law Review, called “The Tragedy of the Carrots,” Galle argues that carrots are overproduced and often misguided, costing the Treasury funds that would be better spent elsewhere in an effort to nudge people towards the behavior it hopes to reward.

“The problem with tax expenditures is not that they are in the tax code, but that they are expenditures,” Galle explains in a recent telephone interview.

Tax-saving ETF strategies to use before end of 2011

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The final quarter marks the traditional time of year when kids dive into leaf piles, heating bills rise and investors with taxable accounts sell underwater stocks to help lower their tax bills.

They shouldn’t have too much trouble finding candidates this year. Despite a recent uptick, most major indexes remain in negative territory for 2011, and with market volatility in high gear more dips could be on the way.

Margaret Atwood on debt and consequences

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Margaret Atwood REUTERS/handoutWhat might be most surprising about the myriad economic problems around the globe right now is how many major world economies seem to have been taken by surprise by the concept of debt. Maybe they should have been reading more Margaret Atwood.

Atwood isn’t only one of the world’s premier novelists, she’s also the author of the nonfiction “Payback: Debt and the Shadow Side of Wealth,” which hit the presses just as the financial crisis arrived in the fall of 2008 (timing that one review described as “freakishly prescient”).

Steve Jobs and giving anonymously

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For all that he achieved in his life in terms of his public image, Steve Jobs was famously not a public philanthropist, unlike his equally titanic tech rival, Microsoft’s former head Bill Gates.

Gates these days is almost as well known for the ongoing good work of the Gates Foundation as he is his private sector success. Jobs, by contrast, kept gates of secrecy around whatever philanthropic impulses he possessed. His giving track record remains shrouded after his passing from pancreatic cancer on Oct. 5, and while his will could shed some light on that, there’s yet no public knowledge of who has the will, when it will be disclosed, and whether charities will get anything.

What the Occupy Wall Street crowd should be saying

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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.

There will be tax breaks: Investing in oil and gas drilling

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Seated in the conference room of his wealth management firm in San Ramon, Calif., Rich Arzaga breaks out a few tools to explain the investment advantages of oil and gas drilling programs. He’s got a fine-point pen and a sketch pad — but alas, no milkshake a la Daniel Day-Lewis in “There Will Be Blood.”

“This is not wildcatting,” says Arzaga, founder and CEO of Cornerstone Wealth Management and an adjunct professor in personal finance at the University of California at Berkeley. Lewis’ anti-hero in “Blood” swindles and snakes for oil wherever he can find it, whereas Arzaga (pictured) wants to discuss something much more civilized: qualified drilling programs that yield big tax savings for investors and, if you’re lucky, 10 or more years of financial returns.

If you want lower property tax rates, you’ve got to ask

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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.

Charitable remainder trusts: How the wealthy give it away and get it back

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Though he first attended the Hollywood Bowl more than 30 years ago, Ron Moormeister remembers well those Los Angeles Philharmonic concerts. His voice waxes rhapsodic as he recalls the lineup: Mandy Patinkin, Julie Andrews, a Tchaikovsky Spectacular complete with the bombastic 1812 Overture.

So when he hit it big in 1995 — selling his insurance brokerage firm at age 49 — he decided to help the orchestra and to get a tax benefit too. He used a  charitable remainder trust, or CRT, a creative strategy that allowed him to give away his money, yet still derive funds from it based on a mix of tax deductions and investment.

The rich respond to Obama’s “Buffett Rule”

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Once the debt ceiling rancor faded, financial gurus and observers had little reason to think debate on taxing the wealthy would ignite again before Nov. 23. That’s when the 12-member congressional super committee issues its recommendations on finding at least $1.2 trillion in deficit reduction.

Then came President Obama’s announcement on Monday of the “Buffett Rule,” a plan to raise taxes on American households making more than $1 million annually. Suddenly, the millionaires who support such a plan — like Warren Buffett himself — had cause for hope after many months of anti-tax furor and tax hike inaction.

Would Obama’s payroll tax cut hurt Social Security?

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The Congressional Super Committee hasn’t even started cutting Social Security, but advocates are already expressing concern on a different front: the payroll tax cut extension proposed last night by President Obama as part of his jobs plan. Those payroll taxes fund the Social Security program.

The President asked for a $175 billion one-year extension and expansion of the employee payroll tax holiday now in place, halving the tax rate to 3.1 percent in 2012. He also proposed halving employer payroll taxes to 3.1 percent for the first $5 million of payrolls in 2012. The president also wants a complete payroll tax holiday that would apply when companies grew their payrolls by up to $50 million in a year by hiring  new workers or raising the salaries of existing workers.