Permanent Value Inc. - Registered Investment Advisor

President’s Message

Fiscal Cliff

Over the past two weeks you have probably seen a lot of information in the news regarding the “Fiscal Cliff.”  This was term coined by the Federal Reserve Chairman, Ben Bernanke, to describe the laws affecting tax rates and government spending going into effect at the beginning of 2013. The resulting laws to avert the “Cliff” were passed as a result of the negotiation between Congress and the Administration on New Year’s Eve a week or so ago.  

The original Fiscal Cliff resulted from negotiations between Congress and the Administration in 2011 regarding raising the debt ceiling when a newly elected Congress with a House Republican majority was looking to cut spending to prevent ballooning deficits. The debt ceiling needs to be re-negotiated again this year. The compromise addressed taxes and the expiring Bush Tax Cuts, but not spending cuts. The compromise bill extended the pending spending cuts by two months to give Congress more time to negotiate and avoid sequestration, the process where Congress holds back money appropriated by the Treasury to Federal Agencies. Below we have detailed some of the key points of this deal.

A Few High-lights

• The Fiscal Cliff bill indexes the alternative minimum tax to inflation, which is geared to help millions of middle-class taxpayers avoid being hit with a higher tax bill averaging to be roughly $3,000.

• College tuition has a five-year extension on up to a $2,500 tax credit while earned income and child tax credits will also be carried-out for five years.

• Families with taxable earnings under $450,000 have an extended tax rate.

• Tax-free distributions from an IRA account to a charity fund, consisting of $100,000 or less, is being extended. Some featured provisions include that individuals may use their December 2012 IRA distributions for a charity and appropriate it as a charity distribution, and that individuals are allowed to create a tax-free charitable IRA distribution during January of 2013 and treat it as if it was prepared in 2012.

Low-lights

• Race track owners, including NASCAR, will receive approximately $78 million in tax breaks.

• Lower payroll tax rates have been extended.

• Reduce government spending.

Investor Advice

• Spend more focus on buy-and-hold investment strategies and on your harvesting losses.

• Consider tax-advantaged investment strategies.

• Pay down mortgage.

• Consider investing in annuities and life insurance.

We hope you and your families have enjoyed your holidays and we look forward to seeing you and discussing your goals for the New Year with you.

Sincerely,

Bruce W. Doole, President

Quarter 3 President’s Message

PRESIDENTIAL ELECTION

Though you may have already made up your mind about who you are voting for on November 6th, the debates and political ads will continue to increase in urgency and frequency. This election will affect this country economically for years to come so we thought it might be helpful to give a rundown of the economic issues you will be deciding on:

Barack Obama:
• Focus on key areas in rural communities to help businesses access capital and expand rural job search and training
• Double exports to foster job creation
• Provide tax cuts for middle class and working class Americans
• Set and enforce clear, consistent rules for the financial marketplace to protect American families from manipulation
• Support bipartisan plan to reduce national debt

Mitt Romney:
• Ensure the long-term solvency of Social Security without raising taxes and encourage individuals to create private accounts
• Return fiscal power to states and the people
• Expand the tax deduction to also include those who buy their own health insurance to empower individuals to purchase their own health insurance, 
• Make American businesses competitive in the global economy
• Cut federal spending and bring reforms to entitlement programs
• Balance the budget by reducing the size and reach of the federal government.
• Open markets abroad, on fair terms, for American goods and services

Whether you are Republican or Democrat, we hope you and your families are enjoying the autumn season and we look forward to seeing and talking to you as we review your 2012 budgets and plans for 2013.
 
Sincerely,
Bruce W. Doole, President

President’s Message

 THE SUPREME COURT UPHELD AFFORDABLE CARE ACT

Recently, the Supreme Court upheld most of the Affordable Care Act with Chief Justice John Roberts  writing  the 5-4 decision for the majority. This means the Act will go into effect over the next few years. The individual mandate will not be enforced under the Constitution’s Commerce Clause, but will be upheld as a tax, according to the majority opinion. The Supreme Court disagreed with the government’s argument that it has the authority, due to its role in regulating interstate commerce to penalize taxpayers for failing to buy health insurance. However, the Court upheld the individual mandate by reframing it as a tax, rather than a penalty. Those purchasing health insurance under the new law but who choose not to, must begin paying the new tax in 2014. The health care law also required states to expand Medicaid, facing the loss of federal funds for the program as a penalty for declining.  The federal government may still penalize states for failing to expand Medicaid under the Act, but may only withhold new funds, rather than all federal funds for Medicaid. The mandate will impact about 26 million Americans, according to a recent study by the Urban Institute and an independent analysis by MIT economist Jonathan Gruber.

WHAT’S DRIVING HEALTHCARE COST INCREASES?

There are numerous reasons why healthcare premiums have been increasing; most are related to the additional costs of medical care.   So why do premiums seem to rise every year? The reason is the hidden costs health plans are required to pay to health care providers. For example, in 2011, hospital expenses were responsible for 48% of America’s medical costs, yet hospitals demand double-digit increases. When insurance companies negotiate with hospitals, they seek to balance making care affordable, yet preserving access to quality hospitals. Pharmaceutical costs comprise 15% of healthcare costs and went up along with hospital costs over 7%.

Healthcare costs can make-up a significant part of your budget which is why we encourage a review your budget on a regular basis. We hope you and your families had a Happy Fourth of July and look forward to seeing and talking to you as we review your 2012 budgets and plans for the year.
 
Sincerely,

Bruce W. Doole, President