A Thank You to the American Taxpayer

I want to offer my thanks to the readers of the Nouveau Poor and the American taxpayer. For the past several months you’ve been helping to buy my groceries. But I’m relieved to tell you that business has now recovered enough that we are back on our feet and ready to totter forward.

The past few years have been extremely difficult. Because of you, our family has had one bright spot in our daily life—the knowledge that we could afford food. When you can’t afford anything else, your next meal becomes incredibly important.

I’m happy to say the safety net worked like it should. Your help not only got us through some impossible months, it saved the jobs of our remaining employees, so their families could keep eating also. Still, when over 46 million Americans are on food stamps—one of every seven people in the U.S.—you know something is wrong. When the number of people receiving food assistance rises more than 70% in four years, and the cost of the program reaches $72 billion, you realize the system is broken.

But it’s fair to ask which system. While I’m very grateful for the assistance, I would have been even more grateful for a solution that made food stamps unnecessary. Since October, we’ve received nearly $5,000 in assistance or $687 per month for a family of four. Of this, we spent about $3,700. How much better would it have been to lower our taxes that amount so we didn’t need food stamps? Or how about removing the government’s foot from the neck of business so that buyers and sellers could make rational decisions? How about stripping out the endless regulations and requirements that make it almost impossible to make a profit if you’re a small business owner? How about not using businesses as the faceless cash cow for every harebrained scheme to come out of Washington? “Tax the rich” sounds great until you end up with no jobs.

I’ve tried to convey in these posts over the past months what it’s like to walk into a grocery store and buy food with an EBT card—all the while knowing that the cashier and the people in line behind you are eyeing your purchases and evaluating the worth of your clothes and your car. Those critics constantly whisper in my head. I can hear them now saying that if I didn’t like using food stamps we should have quit being leeches and gotten jobs—as if it’s that easy. Never mind that approximately 41% of the people on food stamps, including us, already live in working households.

Many people complain that the system is corrupt and riddled with fraud. And I’ve tried to be honest. Food stamps do warp buying decisions. The money comes at no cost except to dignity, and you don’t get to keep what you save—any money that isn’t spent rolls over, but at the end of the day the savings go back to the government. That makes it hard to be conscientious. Only the benefit amounts and a person’s own ethics act as a brake.

That said, many of the current proposals to “fix” the food stamp program are expensive and/or damaging. Some states have proposed limiting the types of food that can be purchased. But determining what to allow and policing such a system is costly. Others states, like Pennsylvania, have instituted asset testing, which makes sense as long as the asset limits are reasonable. If you force a family to sell a car they need to get to a job or look for work, how does that help taxpayers?

Other proposals include requiring photo identification on EBT cards, instituting a work or volunteer requirement (which would penalize job seekers and parents) and drug testing recipients, which besides being demeaning would be too expensive to be worthwhile. A more targeted approach might be to test only those who request replacement cards.

None of these solutions address the real problem: Taxpayers don’t want to see the person next to them getting for free what they have worked for. If you ask 10 people if they are willing to help the poor, nine of them will say yes. But if you take those same nine people to Wal-Mart and show them a woman (or man) using an EBT card, the majority will be outraged by something the person is buying, by her clothes or haircut or the number of children surrounding her or by her car. They will be sure the person is abusing the system.

Again, they’re focusing on the wrong issue. Food stamps are a blessing when you can’t afford food. Are they the right solution? I still don’t think so. Fix the country’s economic woes, and the majority of people receiving food stamps will be able to solve their own money problems. Lower taxes. Reduce regulation. Encourage education.

It’s hard to make the decision to go off food stamps. It’s hard to give up that safety in the face of uncertainty. The construction industry is showing faint signs of life, following the rest of the limping economy, but it’s far from certain that business will continue to move in the right direction. Much of Europe is back in recession, and the U.S. economy shows many troubling signs as well.

So we make this decision with trepidation. On the one hand, walking into a grocery store and paying for our own food will be a huge relief. On the other, the thought of going back to the days of walking out with as little as possible is daunting. But it’s the right thing to do.

I worry about the lessons my kids are learning. Will they decide there’s no point to saving money and working hard? Will they conclude that a college degree is a waste of time? I’ve wondered all those things the past few years. How has reading or overhearing the negative comments about welfare affected my children? What have they made of our choices with food stamps? For example, when they ask why we can’t buy ice cream or cookies, do they understand our decisions? How do they account for the fact that we’ve told only a handful of family and friends about being on food stamps?

I hope they take away some positive lessons: Help is available if you need it. People can be wonderfully kind and generous. You don’t need the latest gadgets and new clothes and entertainment to be happy. We have gotten good at re-creating foods we used to buy out and at baking our own treats. When you can’t afford any entertainment or extra expenses, being able to make a batch of cookies may be the bright spot of the week. And a packet of oatmeal eaten in a tent is more fun than any fancy breakfast at a restaurant.

This will be the final post for the Nouveau Poor as we re-join the self-sufficient. I want to thank my readers for your comments and encouragement and your own amazing stories. I’ve learned much and been given much to think about. I hope I’ve done the same for you, and I wish you all the greatest success.—The Nouveau Poor

Is Your College Degree Past Its Expiration Date?

The Great Recession has taught many lessons, and as someone who has not escaped unscathed, here are two conclusions I’ve reached about college:

Not all college degrees are created equal. Yes, I know, this is obvious. I see Microsoft and Amazon workers at the mall blithely buying iPads (well, maybe not these unless it’s on the sly) and $200 Nikes, and I wonder whatever possessed me to get a journalism degree. I console myself that maybe I’m better off than those who tried humanities or women’s studies, but let’s face it, I should have stuck with math.

College degrees have an expiration date. When you’re handed your shiny, new degree, you don’t really think about this. I sort of figured the process worked like high school, where you use your diploma to get into college and then you stick it in a box somewhere. I thought a college degree would start you on the job path and then fade into the past. But what if your job doesn’t offer constant updates to your skills and credentials? Or your career changes course? Then your 20-year-old degree may end up not worth the expensive paper it’s printed on. How do you know if this has happened? Below are my top ten ways to tell if your degree has reached its expiration date:

Top Ten Ways to Tell if Your College Degree has Expired

  1. Your deferred student loan payments are now larger than your house payment. This isn’t as hard to achieve as you’d think, since the average student loan burden has ballooned to around $25,000. Overall, U.S. student-loan debt has surpassed credit-card and auto-loan debt, and now stands close to a whopping $1 trillion dollars. (Federal Reserve Bank of New York) If you want to scare yourself, you can track the overall numbers here: Student Loan Debt Clock
  2. You’re embarrassed to tell anyone your major.
  3. You now realize that a bachelor’s degree is only a stepping stone to grad school. In 2009, someone with a bachelor’s degree could count on mean earnings of $56,655, while someone with a high school certificate brought home $30,627. Those who went on to a master’s or a doctorate degree did much better with $73,738 and $103,054 respectively. More important, they’re now the ones with the jobs.
  4. The alumni association no longer hunts you down to ask for money.
  5. Putting your degree on a resume brings more questions than answers.
  6. You can remember the name of the campus pizza hangout, but you can’t remember any calculus.
  7. You tell your kids you walked 10 miles across campus in the snow to get to class.
  8. You visit the campus, and your major is either housed in a shiny, new building or the basement of the most distant building on campus.
  9. Job descriptions look like they’ve been written in another language that you need a teenager to translate.
  10. You tell your children what you majored in, and they laugh.

So here is my updated career advice. Stay current and don’t stop building credentials once you’re out of college. If you switch careers or are forced to sideline your job for a while, keep taking classes and the occasional contract job to keep your resume relevant. And when you think a career in the arts sounds like your calling, take a computer class instead and enjoy your hobby while you collect a paycheck.

How has your degree fared? Has it been worth the high cost and loans?

Growth or Grim Times Ahead?

So last week’s survey asked if it’s ethical for those on food stamps to spend money on Christmas gifts. By a two-to-one margin, those responding okayed such spending. This isn’t entirely consistent with last week’s response that said recipients should use benefits only on healthy or basic foods. By that reasoning, if people have money for gifts, shouldn’t they spend it on food and ease the need for assistance? But this is another instance where my kids counted more than my ethics.

For today’s survey, I thought about discussing my New Year’s resolutions, but they’re too simple to sustain a blog: I hope to make enough money in the coming year so that I don’t have to sell my house, my body (which has dubious value), my kids or my dog. (Well, actually, I might entertain offers on that one. She’s a well-trained, six-year-old Black Lab with a tennis ball fetish.)

So instead I’ll ask readers a simple question: Do you think the economy in 2012 will be better or worse? Most experts agree conditions in the next 12 months will improve, with growth limping along at 2.4% GDP (up from 1.8% in 2011), unemployment at 8.8% (down slightly) and inflation at 1.9% (also down from 3.6%). (Research Department, Federal Reserve Bank of Philadelphia Survey of Professional Forecasters Fourth Quarter 2011).

Dr. Nariman Behravesh, Chief Economist of IHS, a financial information provider, predicts sluggish growth between 1.5% and 2%. But he cautions that two big dangers could derail his forecast: a financial meltdown in the Eurozone and a sharp slowdown in China.

Scott J. Brown, Chief Economist at Raymond James & Associates, also sees Europe as a threat to the U.S. economy. “There is still hope for Europe,” he writes in his 2012 forecast, “but it’s not looking good. A more substantial meltdown would have a significant impact on the U.S.economy and long-term interest rates.”

A recent survey of chief financial officers from throughout the country by Bank of America Merrill Lynch also shows tempered optimism. About half of those surveyed say they expect their corporate revenues to grow, and only 7% expect further layoffs. But they worry the government won’t be up to the job of repairing the economy. “Senior financial executives are more concerned about more factors that could effect the economy than in any previous point in the CFO Outlook survey’s history,” says the study. “Heading into a critical election year, it’s telling that 70% of CFOs cited concern about the effectiveness of U.S. government leaders and 63% cited the U.S. budget deficit.”

While the majority of forecasts foresee slow growth and gradual improvement, some take the opposite view and say these gains will simply be the last gasps before a major downturn. One such cheery prognosticator is Robert Wiedemer, Managing Director at Absolute Investment Management, and co-author of “America’s Bubble Economy,” a book that accurately predicted the current downturn. In his follow-up work Aftershock: Protect Yourself and Profit in the Next Global Financial Meltdown,”  he warns that the dollars being pushed into the system now will lead to massive inflation, a collapsing dollar and skyrocketing unemployment.

If you ever feel like spending money on an extra latte, watch the upbeat video on the Aftershock website. Or for an even more fun time you can search “2012 Depression” and come up with any number of blood-curdling predictions about the coming collapse of the economy.

So what do you think? Will the economy improve in 2012? Limp along slowly or hurtle back into the black? Or we will see the next Great Depression? And please let me know if there are any good bids out there for the dog.

Something Smells in Washington State

Washington state has a bad case of BO, as in the business-and-occupations tax levied on all firms for the “the act or privilege of engaging in business” in the state.

Why am I holding my nose? Because Washington calculates the B&O tax on gross revenues–in other words the sum of all monies earned by a company. Nowhere does the tax account for the costs of running the business–leases, payroll, property taxes, supplies and equipment, advertising, etc. So a firm can suffer a net loss, like ours, yet still owe the B&O tax. Only firms grossing less than $12,000 per year escape.

For engineering firms, the B&O rate now stands at 1.8%. The amount we pay each month now roughly equals the amount we receive in food benefits. One fee goes to the state, and the other comes from the federal government, but still it seems insane we must first pay a tax on a loss, and then ask the government to hand the money back so we can eat.

The B&O tax doesn’t hit all businesses the same. Not only do the rates vary by industry, their cost as a percentage of profit also fluctuates with expenses. “The burden varies dramatically,” notes Scott Edwards, a shareholder at law firm Lane Powell in Seattle and an adjunct professor in taxation with the University of Washington School of Law. “Because the B&O is based on cash flow rather than profitability, the impact affects low-margin companies more than high-margin companies.”

In today’s down economy, many firms feel its weight more heavily, he says. “Owners may still have the B&O expense while they’re struggling to make payroll.”

Many studies cite the tax’s basic unfairness. A 2002 study by the Washington State Tax Structure Study Committee points to its pyramiding effect. In other words, a product may be taxed several times as it works its way along the distribution chain to its final user. Unknown to most consumers, these costs often are passed along at each stop with a multiplying effect.

And the tax is hard on start-up firms, which must plow profits back into their companies in order to grow. According to a 2005 report by the Puget Sound Regional Council, Washington ranks 48th in the nation in its survival rate for new businesses, despite being number one in business creation. The B&O tax helps create that dichotomy.

Yet for all the debate, the state isn’t likely to give up the B&O tax anytime soon. Currently Washington faces a $2 billion deficit. In 2011, according to the state Department of Revenue, the B&O tax brought in over $3 billion, or 18.8% of the major taxes the state collected.

So for now, the state continues to kick us as we’re down. We’ll keep paying for the privilege of losing money with one hand, while holding out the other for food stamps. And the state’s costs for administering the food assistance program will keep rising. Crazy, huh?

 

Under the Poverty Line

Today I learned I’m officially living in poverty.  Not only that, I’ve been in poverty for the past three years.  I’d like to argue.  After all, my husband and I have about half a million dollars in retirement accounts.  We have no debt.  I live in a nice home on two acres of property in what was once rural King County south of Seattle, Wash.  The area has devolved into an odd mix of upscale homes, cows grazing on cramped acres, tiny sixties vacation cabins, and huge swaths of cheek-to-jowl box houses.  My neighbors are Boeing engineers, lawyers and computer analysts.

And yet, according to the Census Bureau, I belong with the 42.6 million people living in poverty in the United States.  Since 2007, the poverty rate in the U.S.has increased by 2.6 percentage points according to Income, Poverty, and Health Insurance Coverage in the United States: 2010 released Sept. 13 by the Bureau.  My family is one of those absorbed into that statistic during the past three years.

How did that happen?  The answer lies in another set of statistics.  Unemployment in the construction industry stands at 13.5% according to a Sept. 2 report from the U.S. Department of Labor.  That number has nudged 30 percent or higher in some areas of the country, and it doesn’t really reflect the over two million construction jobs lost during the recession, making it the hardest hit segment of the U.S.economy.  Nor does that figure reflect the numbers of construction workers who have taken other jobs as janitors or burger flippers or who have given up searching for work.

My husband owns a structural engineering firm.  At its peak, he employed nine full-time workers.  Now, two workers crunch numbers amidst a shell of empty offices.  I’m a writer.  Our income has slid from six figures to a parade of negative numbers and a steady drawn-down of our savings.

Does that make us poor?  According to the Census Bureau it does.  The government sets the 2010 poverty level for a family of four at an income of $22,314, far above any dollars we’ve seen for three years.  Yet we still own an Infiniti G-35 (parked indefinitely in the garage), and I drive a Prius—both paid for in cash before the collapse.  My children’s future college tuition is paid for through the GET program, again funded in the before time.  So it bemuses me to read that I’m in poverty.  And I wonder how many of the other 46.2 million people here with me are in similar circumstances.  Do they have college educations and steady work histories, too?  Were they assured they’d made responsible choices by funding their retirements and children’s educations, avoiding debt and buying health insurance?  Like me are they wondering if they’d been better off buying three TVs and taking out two mortgages and flying to Europe?  Because now we’re all down here together.  Officially in poverty.