Vertigo II April 2, 2009March 13, 2017 VERTIGO II: YEE-GADS! Scott Nicol: The Rock Pulpit’s nothing. Check this out. (If you are short on time, search on ‘foolish journey’ and start there.)” ☞ Oh . . . my. Take a few minutes to enjoy not being there. Wow. WHEN ACCEPTABLY TO SPLIT INFINITIVES Those who split hairs rarely split infinitives. But is it not preferable to split them when meaning would otherwise be compromised? As in: “The goal is not to let the banks fail.” That’s fine if you plan to follow up with something like, “Rather, the goal is to let the department stores fail.” But chances are what you really mean is: “The goal is to not let the banks fail.” And I see no way around splitting that infinitive. It is the sort of transgression up with which I gladly put. MORTGAGE THE HOUSE TO CONVERT TO A ROTH IRA? Paul Kroger: “What do you think of this strategy? We own our home free and clear, expect to stay here at least 15 years; are retired with a fixed pension that can meet most of our needs; have traditional IRA assets equal to about 33% of what we can borrow at 4.5% for 30 years; and expect inflation and/or tax rates will substantially increase when the country has no choice but to deal with its deficit/debt problems. The strategy is to mortgage the house and use the proceeds to pay the taxes due on converting IRA assets to a Roth over a number of years. Dedicating about 20% of my pension to paying off a mortgage is a partial hedge against inflation (our biggest exposure), while eliminating significant future tax exposure (a close second).” ☞ It makes sense to me, especially as – if I read you right – you’d need to borrow only a small fraction of the equity in your home. (If the IRA equals a third of your borrowing power, then the tax due on the conversion would likely be less than a third of that – maybe 10% of your borrowing power, and thus an even lower percentage of your home equity.) A quibble and then some cautions. The quibble is your saying “paying off a mortgage is a partial hedge against inflation.” Of course, it’s the taking of a fixed-rate mortgage that’s the hedge against inflation, not the paying it off. Now, herewith, the cautions: It’s possible of course that tax rates will fall rather than rise – that we’ll raise government revenue some different way, like a Value Added Tax or the cap and trade “tax” referenced yesterday, such that income tax brackets are lower, not higher, when you go to withdraw money from your Roth IRA. And it’s possible your Roth IRA will depreciate rather than appreciate – so you would wind up having paid tax on more than you got to withdraw. I don’t think either of these is likely, but you never know. It’s also possible that your Roth IRA, while not depreciating, will grow at less than the rate of interest on the mortgage (even after shaving that rate to reflect the value of the mortgage interest tax deduction). Why borrow at 4% to earn 2%, say? The biggest risk may be that you borrow more than you need to do the Roth conversion – well, it’s so tempting, isn’t it? – and spend or lose the excess in some colorful but ultimately depressing way. Pending wiser comments from other readers, though, I think I’d go ahead with this if I were you. Roth IRAs offer a degree of flexibility and simplicity traditional IRAs do not.
Vertigo April 1, 2009March 13, 2017 THE ROCK PULPIT If you are afraid of heights, take a valium before getting past #21 of these 40 slides. What a planet. CAP AND TRADE Craig Daniger: “From John Maudlin’s letter: President Obama give us a budget with a projected deficit of $1.75 trillion dollars, and a massive tax increase on the “wealthy.” But hidden in the details was an even larger tax increase on everyone. Obama wants to create a cap-and-trade program for carbon emissions. This is expected to generate $79 billion in 2012, $237 billion by 2014, and grow to $646 billion by 2019. These will be payments by energy (primarily utility) companies to the government. That will cause utilities to have to raise the prices they charge customers for energy. Such a level of taxation is eventually 4-5% of total US GDP. That is not small potatoes. And since the wealthy do not use all that much more power than the rest of us, it will affect the lower incomes disproportionately. “It will take money out of consumers’ pockets and transfer it to the government. You can call it cap-and-trade, but it is a tax. And a huge one. And by driving the cost of energy up, it will drive high-energy-using businesses away from the US to developing countries where energy is cheaper. It will make it even harder for people to save money and drive up costs for the elderly and retired. But it will make the environmental lobby happy.” ☞ Ah, but consider the beauty of this. First of all, it is a tax you can chose not to pay. All you have to do is strive, over the next 10 years, to use a lot less energy. More efficient lighting, more efficient appliances, more efficient insulation, more efficient cars; better habits (do you really need the lights on when you’re not in the room? Is there no way to idle the computer a few hours a day?). Granted, for the super-green citizen who’s already done much of this, there will be relatively less inefficiency to be wrung out of his or her budget. But something tells me, he or she would welcome this kind of incentive: taxing the thing we want to discourage (fossil fuel energy consumption); thereby to keep the income tax as low as possible on the things we want to encourage (work and investment). And businesses get the same incentives: wring out inefficiencies, design with energy cost more prominently in mind, switch to non-carbon-based energy. These are good incentives that we should have built into our economy decades ago. Had we done so, Detroit would most likely lead the world in fuel efficiency – and sales. Our balance of trade deficit would not have run wild. The dollar would be stronger. Our National Debt would be lower. Our air would be cleaner. Our trajectory to address the global climate change emergency would have been longer. Ah, well. Better late than never. NOTE: I know a lot of people think a direct “carbon tax” is superior to the cap-and-trade system. I don’t understand it well enough to be certain they’re right. If they are, though, my guess is that the Administration knows it, but thinks a direct tax would simply be too unpopular to pass Congress. This is America, after all.