Political Commentary

As a solo-practicing attorney seeking to hire an employee, I am quite upset with the tax laws and regulations regarding retirement accounts. If you are self-employed or own a small business, you likely share my frustration with the current tax laws and regulations surrounding retirement accounts such as Traditional IRAs, Roth IRAs, SEP-IRAs, Individual 401(k)s, and 401(k) Plans.

If you are an employee working for a company that offers a 401(k) Plan, it’s extremely easy to save for retirement. You simply enroll in your employer’s 401(k) Plan and can stash away $16,500 in tax-deferred income for retirement per year. But what are sole proprietors and small-business owners supposed to do if they want to take advantage of retirement accounts?

The first and easiest option for the sole proprietor or small-business owner is to open an IRA — Traditional IRA, Roth IRA, or both. However, you’ll be confined to a maximum $5,000 total contribution to both IRAs if you’re under 50-years-old and get a mere extra $1,000 contribution if you’re over the age of 50. You can’t even contribute $5,000 to both. If you want to fund a Traditional IRA and Roth IRA, your combined contributions cannot exceed $5,000.

There are also further regulations on how much you can contribute to a Roth IRA. If you are single and earn over $120,000, guess what, you cannot contribute to a Roth IRA because you make too much money. Fortunately, as long as you are not covered by an employer-sponsored retirement plan, you can still contribute $5,000 to your Traditional IRA.

You are probably thinking what can I do to save for retirement, take advantage of tax laws, and reduce my current tax burden if I am self-employed or a small-business owner? The plans that you’ll want to explore in more detail include Individual 401(k)s and SEP-IRAs. Like the 401(k), you can significantly reduce your current year taxable income by deferring the taxation my placing it into these retirement accounts. However, setting up and understanding these accounts does not come without headaches.

I am particularly in a rough spot because I have been a self-employed sole proprietor, but I am now thinking of hiring one single employee. An Individual 401(k) would be the perfect retirement vehicle for me if I could rule out the possibility of hiring an employee, but as soon as I hire a full-time employee, the simplicity of the Individual 401(k) goes out the window and I’ll have the burden of establishing a regular 401(k) Plan to offer to my employee.

If I hire a part-time employee who works less than 1,000 hours per year (slightly less than 20 hours per week), I am still eligible for an Individual 401(k), but as soon as I hire a full-time employee or a part-time employee who works over that 1,000 hour limitation, I am forced to offering them a regular 401(k) Plan.

What’s the alternative to the 401(k) for the small-business owner with one single employee? The alternative would be the SEP-IRA. An SEP-IRA can be setup regardless of whether or not you have employees and has similar tax-deferring benefits as the 401(k). The SEP-IRA has 401(k)-like advantages in that you can receive a substantial deduction for contributions made towards the plan. You can contribute up to $49,000 per year and defer the taxation of that income. The limit on your contribution is 20% of your net adjusted self-employment income, which is a fancy way of saying take your gross income, subtract your business expenses, and then half of your self-employment tax.

The SEP-IRA comes with a whole host of regulations. The SEP-IRA requires IRS Form 5305 stating the rules for who is an eligible employee. Essentially, if you have an employee who is over 21-years-old, earns over $450, and has worked for you in three of the last five years, the employee is entitled to contributions under the SEP-IRA. While contributions to the SEP-IRA are completely voluntary, if you have an eligible employee and make a contribution to your SEP-IRA, you must also contribute to your employee’s SEP-IRA proportionately. Further, all contributions to the SEP-IRA are made by the employer. An employee cannot make contributions to their SEP-IRA.

After we work through our options, if you are a small business owner with just one single employee and want to take advantage of retirement accounts, you’ll have to setup a 401(k) Plan or establish a SEP-IRA.

Why can’t Congress simply pass an Act that states that small-business owners with less than 50 employees that do not have a 401(k) Plan can contribute up to $16,500 to their IRA so they can receive the benefits of a 401(k) without having to go through the headache, hassle, and cost of setting up their own 401(k) Plan? Congress should do more to encourage small business owners to save more for retirement.

With our debt growing and our allies quickly dying off, I think we are heading in a direction that may be quite different than what we, as Americans are accustomed to. Pakistan is quickly siding with Russia and Iran and Palestine have Israel (our only real ally left) in their crosshairs. Tom Coburn, an Oklahoma republican, who was part of the “gang of six” (a bipartisan group of politicians who were attempting to sort out our budget deficit), has walked away from the so-called gang. Coburn says that they are not coming to a legitimate conclusion so he has to walk away from it. How can he just walk away? We have some extremely serious issues at hand and he is tired of it? This is the problem we have right now. It is not just democrats or republicans, it’s lazy politicians who have the liberty to just walk away or go on holiday when things get too tough.

With the 2012 elections right around the corner, many people are looking to the republican party to do something huge. However, with probable front runners Huckabee and Trump dropping out, it has me scratching my head. Now don’t take what I say out of context. I love my parents are grandparents very much but it is the baby boomer generation that has gotten us into this mess. Everyone wants to call our twenty-something generation incapable and lazy but I think that we have had enough of these “bipartisan” teams that get nothing done. In a time where most politicians are part of the baby boomer generation, things are the worst since the great depression. We need new politics. Young, passionate, men and women who have the best interest of their fellow Americans in mind.

Here is the point that I want to tie this all into. America has lost our “idea”. We have so many other major “ideas” such as sharia law (islamic law) or communism, fighting against us. Up until the 1970′s, Americans everywhere would fight for freedom, liberty and the pursuit of happiness. I feel as though, in a lot of cases, people feel like the work is done and we have reached our peek. I strongly disagree. Although I think that Americans protect nothing except for “things” nowadays (such as oil, houses, and property [which are somewhat necessary things]), we can revert back to a strong belief and faith in our ideals. America was built on ideals. Separation from England and self sustainment. We were an “idea” of freedom, and every capable man and woman played a role in protecting our liberty. I do believe that we can be that again but it takes time and work that our current politicians try to pawn off on the many government agencies underneath them. I just want people to understand how crucial this is. As I stated at the beginning of this article, we have so many large issues at hand. We do not have time to argue anymore. We keep telling ourselves that we have more time but we do not. If you are reading this, I hope that you will hear me and see what really is happening. We need to find our “idea” again and push back the infiltrating viewpoints that are trying to undermine our ideals.

Will Sarah Palin run for the presidency in 2012? I sure hope not.

To borrow a line from Billy Madison: “Ms. Palin, what you’ve just said is one of the most insanely idiotic things I have ever heard. At no point in your rambling, incoherent response were you even close to anything that could be considered a rational thought. Everyone in this room is now dumber for having listened to it. I award you no points, and may God have mercy on your soul.”

Two interesting facts about the U.S.’s debt woes.

The following comes from the Wall Street Journal (April 2011):

Even if the top 1% of the U.S. earners were taxed at 100%, there would still be a deficit. Taxing the top 1% of the country 100% of their income would bring in $938 billion which isn’t enough to cover the $4 trillion annual budget and the $1.5 trillion annual deficit.

The U.S. has $2.7 trillion in currency and bank reserves to support an estimated $70 trillion in total borrowings, which include Treasury debt and other federal obligations, mortgages, and other consumer loans, and municipal and corporate bonds. By this measure, the U.S. is leveraged 26 to 1. Putting that in perspective, Lehman Brothers was levered about 31 to 1 before it imploded.

As I promised yesterday, I would like to get into President Obama’s speech from Wednesday afternoon. I wrote yesterday that Obama threw around a few, but not enough numbers in his fiscal policy address to the nation. As I pointed out, the President states that the $38 billion budget cuts will total $750 billion in savings over the next twelve years. Now from my understanding, the equation is simply $38 billion multiplied by twelve years. This equals only $456 billion, which is only sixty percent of the $750 billion total that President Obama promises. Also, he boldly stated that, by the end of this decade, the interest that we owe on our debt will be nearly $1 trillion. After looking into this statistic on Politifact.com, Obama is using 2019 or 2020 as “the end of the decade” instead of 2021 which is ten years from now. Obama’s numbers are anywhere from 13% to 29% off and the interest will fall well short of $1 trillion.

Our national debt has now exceeded fourteen trillion dollars. I cannot even comprehend that volume of money. Now, there is talk about the United States potentially defaulting on our loans. We need to pay back $2 trillion of the $14.3 trillion by the end of this year. If the Senate raises the debt ceiling, it will force us to borrow money from the same people we owe the money to. Also, the Senate rejected, on Thursday, an effort to cut funds for President Obama’s health care law. The vote was fifty-three to thirty-seven, which just so happens to be an uncompromising divide straight down the middle of Republicans and Democrats. However, Democrats and Republicans everywhere are boasting that we will not be able to come to a compromise and that the final decision will please absolutely no one.

Obama introduced his budget plan two months ago and is relying, heavily on a tiny group of democratic senators to transform his 2012 budget proposal into a long-term strategy to reduce our increasing debt. Now here is the issue. President Obama’s February budget plan will not only fail to stop our debt from increasing but it will allow for a $1.2 trillion deficit in 2012 alone. Even more upsetting is the $9.4 trillion additional debt over the next ten years. The President has recognized that his plan is significantly inadequate. The Congressional Budget Act requires him to submit a revised budget plan but he insists on spending his time invalidating Paul Ryan’s budget plan. Jeff Sessions, a member of the Senate Budget Committee was not pleased at all with our Presidents lazy budget proposal. “They have no intention of actually following through the speech with concrete proposals that Congress can evaluate,” Sessions says. ”The idea he’s proposing can’t be evaluated because it’s just talk.”

Today, Standard and Poor’s Rating Service told the American government that politics are interfering with achieving a legitimate budget compromise. They have lowered the outlook of U.S. sovereign debt from “stable” to “negative”. This is EXTREMELY scary. This is the next move toward a complete and total stock market crash and shift into hyperinflation. The rest of the world is losing confidence in our currency and they have been warning us for quite some time now to cut spending and start advancing toward a balanced budget. After S&P announced their decision, President Obama declared it “dirty politics”. What an absurd thing to say, especially considering that our President has been warned time and time again by economists to stop the spending and start cutting back. Like I stated in my last article, our commander in chief loves bipartisan politics, as long as the final resolution pleases his voters and party members.

Finally, oil prices have soared to an all time high and Saudi Arabia has announced that they are cutting back on production. I believe that this is in part due to their lack of confidence in our financial institutions. It will soon come to the point of drilling on our own soil. Our nation uses oil. It is a necessary part of life considering renewable energy only makes up seven percent of our nations total energy supply.

Unfortunately, I am not able to get to the union issue today. However, I will be discussing unions and high labor costs tomorrow. Thank you for reading.

-Joe Piperato