tax tips

Paper Chase: People Get Insured and the Most Helpful Tax Tips

GDP expanded at an annual rate of 2.6% in the 4th quarter which was slightly above analyst estimates of 2.4%. Stronger consumer spending is believed to be behind the increase.

Growth in home prices slowed in January. The Case-Schiller Housing Price Index increased about thirteen percent as compared to last January which was in line with analysts’ estimates.

Facebook has bought Occulus for 2 billion dollars. Occulus makes virtual reality glasses for gaming. This deal seems to be a bet on the future of wearable devices.

The Market

The S&P has more or less given back all of its gains for the year. The market in 2013 was up 32% in total returns, sixty percent of which was multiple expansion and forty percent of which was earnings. A digestive period to factor in the big gains from last year is not extraordinary. Remember, earnings are at an all time high which means markets could hit an all time high at some point this year. The market is still expected to return anywhere from 7-10% this year and there will be some multiple expansion if interest rates remain low.

The Economy

Consumer spending picked up in February when the weather was bad which would lead one to believe that the weather was not as big a factor on the economy as we thought. Honestly, I don’t think we’ll have a clear picture on the economy until the summer as we see what the Fed will do with both interest rates and asset purchases. The Fed wants more data and to make sure they are not reacting to short term trends or a narrative of month to month movements.

The Fed

The Fed expects growth of three percent this year. There is a school of thought that we are in trouble whether we get that kind of growth or not. If we don’t achieve 3 percent as predicted, there is little doubt it would be bad for markets. However, even if we do achieve three percent growth, the Fed may have to raise rates faster than the market can handle. I don’t believe we’ll get to three percent considering the Fed has overshot on the economy more than undershot. As far as the economy growing too fast is concerned, the Fed is looking at the labor market and not GDP. An employment rate of 5.5%, which would probably trigger Fed action, is not expected until 2015 or later.

Rates and Inflation

If rates rise, the only way investors lose is with higher inflation. The backup in interest rates has been in real terms meaning there has been forecasting of higher real GDP growth which would be good for the market. Last year, real rates bottomed out at 1.6. They are at 2.7 now and the market has really had no problems. The market is expecting rates to normalize, but if they rise because because inflation is higher, it could be a real problem.

Citi Failure

This is the second time Citi has failed the stress test in three years. The Fed denied Citi’s plan to increase dividends and repurchase stock citing concerns over the “overall reliability of Citigroup’s capital planning process” I believe the Fed’s rejection of Citi’s plan is a reaction to decisions they didn’t make a decade ago. Then they felt they were cautious, now they will be overly cautious. While the Fed didn’t see the first crisis, even if they had, there is question as to whether they had the tools in their regulatory toolkit to even stop it. The Fed is showing it has the muscle to stop crises before they happen or to mitigate their effects. It wants to make sure 2008 never happens again and is showing us the tools it will use to fight present concerns over financial instability due to very low rates over a very long time.


Four years after passage of the PPACA, it is performing as expected in spite of many early hiccups. At the end of the first open enrollment period, between six and 6.5 million people enrolled on the exchanges which is slightly lower than expected. Mind you, the federal website was down and some state exchanges still don’t work. We are seeing marked improvements in quality of care including declines in infection and early c-sections for medical reasons. Overall, costs have been flat for the last 3 years as Medicare and Medicaid members have not seen increases in their premiums.

The Numbers

It is estimated that 15-20% of enrollees haven’t paid their premiums, and we don’t know the mix of old enrollees to young enrollees as well as delineation between who was uninsured before, who got coverage, and who got knocked out of the system due to Obamacare, and we will probably not know for years.

6.5 million people signing up suggests there is pinned up demand. People want insurance, but haven’t had a good affordable way to get it. Twenty-five-to-30% of young people, a proxy for “healthy citizens,” will be enough to keep rates stable. Most insurers hedged their bets and had some premium built into their rates when the law was first proposed.

Employer Provided Insurance No More?

What we know is that the idea of an exchange is workable and the fundamentals of the exchange are solid. In fact, there is reason to believe that in ten years big employers will no longer provide insurance. While this is contradicted in Massachusetts which has had Romneycare since 2006 and have more employers offering insurance now than before, if the exchanges become optimal, people (particularly the young who like shopping and buying things online) may lead future employees to prefer the exchanges. Employers offer insurance in Massachusetts because people wanted a way to get insurance through employers if they were mandated to have it. Companies offer private exchanges and they themselves offer a range of choices. While there are many variables, it boils down to everyone having a lot more choice when it come to insurance.

Most people have no choice and employer says you take it or leave it.

Get Used To It

People want insurance and Obamacare has provided them with it. AFL-CIO and other unions have complained, but they have collective bargaining and can negotiate with their employers. Depending upon how valuable those employers think their initiatives are, they can prioritize healthcare demands in any way they see fit. Those with so-called “cadillac plans” will have to pay more, but those tax benefits provided by cadillac plans were being paid for by the rest of us. As a matter of fairness, those who want deluxe plans should pay more for them than those who want less exhaustive plans. No public policy in the world will make everyone better off, but the most vocal critics of Obamacare seem to be financially well off and currently healthy. We need health insurance and delivery that cares for the sick and provides protection for all of us in case we suffer illness or injury.

Tax Tips

Tax day is April 15th. How can you lower your taxable income? We provide you with a few tips.

Moving Expenses

Moving expenses can be deducted for those who moved for a job and paid out of pocket expenses. For the first job, the move has to be at least 50 miles away from old home.


If capital losses are more than capital gains, you can claim a deduction of your total net loss up to $3000. The loss reduces your taxable income.


A simplified employee pension plan is eligible for sole proprietors, business owners, eligible employees, and self employed workers. The contribution is limited to 25% of compensation (20% of self employment income) up to $51,000. The contributions are tax-deductible, and the Sep-IRA must be setup by April 15th in order to count for tax year 2013.


Setting up a health savings account by April 15th can reduce your taxable income for 2013. You can contribute up to $3,250 if you are single or $6,450 for families. The contributions lower taxable income on a dollar-for-dollar basis. Contributions and withdrawals are tax free.

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