THE TAX ATTIC with Jerry Coon

Tax news, good and bad

Jerry Coon

We received some good news/bad news from the federal government last week. The Consumer Price Index for this year showed an increase of 3.6%. The good news is the 55 million people who receive Social Security benefits are entitled to a 3.6% increase in those benefits beginning in January 2012. Another 8 million people who receive Supplemental Social Security benefits will also receive the 3.6% increase. In total, that means almost one-fifth of all residents will get a pay raise.

The bad news is the 3.6% increase means that our cost of living has officially increased over the past year. It takes more to pay the basic bills this year than it took a year ago. That means we have some inflation going on whether the economists and the Federal Reserve people want to admit it or not. If it costs more to live this year than it did last year, shouldn’t that increase be called inflation? In my mind it is.

Have you ever wondered how they came up the 3.6%? There are many different Consumer Price Indexes. Each of these Indexes measures a specific time frame and a specific basket of goods.

For the purposes of Social Security, the federal government uses a Consumer Price Index called the CPI for Urban Wage Earners and Clerical Workers. The time frame measured is July, August and September. Washington looks at what it costs to buy the basket of goods in this particular CPI in July, August and September of 2011 versus those same products’ cost in July, August and September of 2010. They are comparing apples to apples and the total cost to buy all of the apples was 3.6% higher in 2011.

For the previous two years, the total cost had been flat. That does not mean that all of the costs were flat. It simply means that the total cost of all of the products in the CPI basket did not increase in the time frame of July, August and September from one year to the next.

This is truly a catch-22 situation. To a large percentage of recipients, Social Security is their main support. Regardless of what the CPI for Urban Wage Earners and Clerical Workers calculated out to be over the last two years, I believe our cost of living had increased. We all know the joke about figures don’t lie, but liars figure. Well, statistics don’t lie, but I think I know a few statisticians who can make a statistic say whatever they want it to say. The statistics say there was no inflation in the years of 2009 and 2010 and, therefore, there was no official inflation. I don’t buy that but that’s the official story.

Another bit of bad news is that if Social Security benefits are increased, Medicare B premium costs will also increase. The average Social Security check will increase by approximately $39 per month. How much of that $39 will be eaten up by Medicare will be released soon. All that we know is that Medicare premiums cannot increase by more than $39 because, by law, those Social Security checks cannot go down. I will report on that Medicare figure as soon as it is released.

Here is an update on Herman Cain’s 9-9-9 tax program. He has revised his plan to exclude taxpayers from the 9% income tax component who have earnings of less than the federal poverty guideline amounts.

How much can a person make without having to pay tax? The poverty guideline amounts are published in January in the Federal Register. The calculation is determined by the Department of Health and Human Services. It is used to determine if a taxpayer is eligible for federal aid programs such as Head Start, the Food Stamp Program, the National School Lunch Program, and the Children’s Health Insurance Program.

For 2011, the guideline says that a single person with income of $10,890 or less is living in poverty. A two-person family with income of $14,710 lives in poverty. A four-member family with income of $22,350 lives in poverty, and an eight-member family with income of $37,630 lives in poverty. For each additional person added to the equation, the poverty level increases by $3,820.

Will making this change be enough to mainstream Mr. Cain’s plan? I don’t think so, but I also think there will be more changes over the next few months. I will keep you informed of those changes as they develop. This is Jerry Coon signing off.

Jerry Coon is an Enrolled Agent. He owns
Action Tax Service in Rockford. Contact Jerry
at www.actiontaxservice.com.

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