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The Independent Investor: A Nation of Minimum Wage Workers
By Bill Schmick On: 06:45PM / Thursday August 08, 2013
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Recently, the minimum wage in America has been the subject of much debate. Proponents of increasing the wage argue that people holding those jobs can't possibly make ends meet. Those against it contend that by doing so even more people would be priced out of the work force. Why should you care?

After all, minimum-wage workers are usually younger folks who work part time or after school. Today, just about 4 percent of all hourly-paid workers receive the minimum wage and only 2 percent if you count all wage and salary employees. That is still quite a lot of people, but when you break down those who are actually supporting a family on minimum wage, the numbers decline even further.

Consider that over 63 percent of minimum-wage workers who would gain by increasing the minimum wage are second or third earners in a family that overall is making well above the poverty line, according to the U.S. Bureaus of Labor Statistics (BLS). A full 43 percent of minimum-wage workers, according to the BLS, live in a household that is earning over $50,000 a year in income.

Bottom line: it appears that half of the minimum-wage work force are teenagers and young adults (under 25). Spouses and children of wage-earners providing a second and third income to a household account for 63 percent. As the minimum wage increases, this segment of the work force would be even more likely to seek entry-level jobs to supplement household earned income. As such, they become an even larger percentage of this wage group and will tend to "crowd out" those in poverty who truly need these jobs.

Advocates of raising the minimum wage (to above $10/hour) claim that by doing so we would create 140,000 new jobs, which would contribute $32.6 billion to our GDP. I find that rather hard to believe given that so few wage earners are getting the minimum wage. So, why do I still advocate raising the minimum wage?

Last year I wrote a three-part column on "Inequality in America" revealing that the U.S. ranks last among developed nations in income equality throughout the world. Since then, this country's divide between the haves and have-nots has widened. As such, anything that can shift the playing field in favor of the middle-class, if only in a small way, is a step in the right direction.

Forty percent of U.S. workers make less today than what a full-time minimum-wage worker made back in 1968 when adjusted for inflation. And those of us that do have jobs work harder and longer hours than ever before with fewer benefits. While the rich get richer, our real wages have continued to decline. Rather than pay out benefits or raises, the trend among American corporations is to hire part-time workers.

There are many reasons why this country is experiencing severe dislocations in the work force. Recession, a mismatch of skilled workers in certain sectors, American attitudes toward acquiring the new skill sets necessary today for a well-paying job, overseas wage competition pressures, technological change, lack of education, etc. But while this country sorts out these issues, there is nothing wrong with at least re-distributing some of the wealth via the minimum wage.

God knows, Corporate America is not going to do it themselves.

Bill Schmick is registered as an investment adviser representative with Berkshire Money Management. Bill’s forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquires to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.



     
The Independent Investor: Congressional Farm Bill Is a Disgrace
By Bill Schmick On: 04:37PM / Thursday August 01, 2013
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There were times in the past when farmers needed the government's protection. There may even be a limited need for it today, despite the good times many in agriculture have enjoyed in recent years. However, nothing can justify the travesty that congress has offered the taxpayer in its new five year plan for agriculture.

Lawmakers largely voted along party lines (only 12 Republicans voted no along with all of the Democrats) for the bill that dropped food stamps from the farm bill. That left "austerity-minded" Republicans to approve a new spending program that will cost taxpayers $195.6 billion over the next ten years. But, hey, says the Tea Party, we're saving you close to $800 billion by cutting out food stamps, right?  

That vote should come as no surprise since the GOP body, in my opinion, is simply taking care of its own. You see, 24 Republicans sit on the House Agriculture Committee, which oversees this country’s runaway farm welfare program. Total government farm payments to the districts of those 24 congressional reps come to more than $1 billion/year.

However, unlike the 46 million Americans that receive food stamps (who are earning less than $32,000 annually), the benefits of the congressional farm bill (around 80 percent of the money) accrue to a group of people with incomes way above the national average. As an example, net farm income is expected to reach $128 billion this year. That's the highest level in real terms since 1973. And while 12 million Americans endure unemployment, farm income overall exceeded $92.5 billion in 2010, a 34 percent increase from the year before.

Don't get me wrong. I am not talking about the small farm homestead you drive by on your way home. Although they make up almost 90 percent of the farm population, the median farm operator household consistently has a net loss from farming activities.

"Most farm income is concentrated in households associated with commercial farms, which represent 10.3 percent of the farm population," according to the U.S. Department of Agriculture.

However, that same 10 percent representing large farms and agricultural cooperatives have been getting 73 percent of all government subsidies for decades. That has amounted to billions of dollars in direct payments. Commodity farmers, for example, who grow corn, soy, wheat or cotton, are given $5 billion/year, whether they actually grow those crops or not.

Don't be fooled when congress claims they are reforming agriculture by eliminating the direct payments program, which they created back in 1996. The politicians are simply replacing that program with a $9 billion expansion in crop insurance. They argue that since farming is a risky business, the taxpayer should pick up 62 cents of every dollar the farmer pays to insurance companies to safeguard against crop failure due to droughts or floods. But today more than half of the insurance policies taken out in that sector are revenue insurance (guaranteeing big farms a minimum price) rather than weather risks.

To make matters worse, there are no caps on how much farmers can receive from this insurance subsidy program. Today, crop prices are close to their historical highs. Big commercial farmers can basically lock in those high prices by taking out this insurance, effectively hedging against a price decline in their crop and we the taxpayer get to pay for it in high prices for our food and paying the majority of insurance premiums.

The government's system of agricultural price supports makes no sense at all. Take sugar, as an example. Sugar is 50 percent higher than anywhere else in the world because our government sets a minimum price for that commodity. In order to maintain that price the USDA may have to buy upwards of 400,000 tons of sugar, costing you and me $80 million in taxpayer dollars just to keep the price of sugar artificially inflated.

So why is it, you may ask, that milk prices would actually spike higher if subsidies on that product were removed? The problem is not in the price of milk, it is in the costs to produce it. The climbing costs of feed in recent years (feed prices are kept artificially high by our farm program) make producing milk a losing proposition. If it were not for the fact the government subsidizes dairy farmers, farmers would be forced to jack up the price of milk to as much as $6 a gallon in some states.

Our farm bill is archaic. It has all the waste and inefficiencies that marked the Soviet-era central planning debacle that ultimately destroyed the agricultural sector in Russia. It is therefore interesting to note that the party that professes to abhor socialism, government interference in the private sector (food stamps, etc.) and additional spending has done a complete about face when it comes to the high-powered lobbying of a handful of corporations and their own self-interests.

Bill Schmick is registered as an investment adviser representative with Berkshire Money Management. Bill’s forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquires to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.



     
The Independent Investor: Food Stamps & the Farm Bill
By Bill Schmick On: 03:56PM / Thursday July 25, 2013
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The decision by Congress to pass a version of the new farm bill that excludes the food stamp program caused a fair amount of concern throughout America last week. Unless a compromise is reached with the Senate by September, it will mean that a lot of people, especially children, are going to go hungry in the months ahead.

Food stamps, officially called the Supplemental Nutrition Assistance Program (SNAP), have been around in some form or another since the Great Depression. Its basic purpose is to help distribute food to the needy amid calamitous times such as widespread unemployment and economic dislocation. It became part of the farm bill back in the 1970s through political expediency. Every five years since then, the legislation has been renewed, usually with some new tidbits of pork for both sides. Both Democrats and Republicans grew to like this deal because urban liberals could advance their ambitions to provide nutritional help to the poor and needy while rural lawmakers could guarantee continued price supports for their farming constituencies.

Over the following decades this bi-partisan back-scratching resulted in a farm bill loaded with abuses, Soviet-style central planning and governmental outlays that expanded exponentially went hand-in-hand with hand-outs for all regardless of real need. Over the past 10 years, as an example, the farm bill has cost taxpayers close to a trillion dollars.

Today almost 80 percent of those outlays are spent on SNAP and other food stamp-type programs, which cost taxpayers $78.4 billion in 2012, compared to $20.6 billion in 2002. Last year, 46 million Americans received an average of just over $130 in benefits, which amounts to about 73 percent of their monthly grocery bill.

Households must earn less than 130 percent of federal poverty guidelines and have assets of less than $2,000. For a family of four, this would mean an annual income of less than $32,000. The number of Americans that took advantage of the SNAP program last year increased by nearly 3 percent and given the economy and unemployment, that number is predicted to increase again this year.

The Berkshire delegation spent a week living on $31.50 - the average SNAP amount for an individual

Berkshire Lawmakers Taking SNAP Challenge

Halfway Through SNAP Challenge

#SNAPchallenge tweets

Berkshire Lawmakers Complete SNAP Challenge

In addition to food stamps, the Emergency Food Assistance Program, as well as other nutrition programs aimed at children, seniors and Native Americans, were also discarded as part of this latest congressional farm bill overhaul. What, you might ask, could possibly justify this wholesale gutting of one of this country's most important social safety net?

Democrats blame the Republican Party, led by the austerity-at-any-cost tea party faction, for the fiasco. On the surface that may be true, but I have to give the GOP a point or two for at least trying to overhaul this unwieldy and unworkable bill. Separating the two issues was a good way to start.

House Speaker John Boehner (R-Oh) said that although they dropped food stamps from the farm bill, the Republican Congress would address that issue in the future. I believe that many moderate Republicans see the worth in food stamps but that does not mean that they won't try to rein in the amount the government is spending on the program.

Critics argue that these food stamp programs have become too easy to access under the Obama administration and are costing the country far too much. The Wall Street Journal in its editorial, "A Healthy Farm Rebellion," applauded the GOP's actions and labeled food stamps "the symbol of the runaway welfare state with 47 million Americans receiving taxpayer funded meals as of this March."

There are also growing complaints that the quality of the foods and drinks that recipients are buying with their food stamps ($5 billion alone was spent on soda) cannot be termed "nutritional" by today's standards. The cheap processed food choices, critics insist, are simply adding to the obesity problem and do little to provide a well-rounded supplemental diet for America's poor and low-income families.

Some of those arguments do ring true to me. I also agree that the farm bill has become an unholy alliance of bipartisan pork barreling. It needs to be re-invented but I do take issue with how the Republicans have tackled the problem. You don't throw the baby out with the bath water. This is literally true since 72 percent of SNAP participants are in families with children and fully one-quarter are in households with seniors or people with disabilities.

The time to reduce these kinds of benefits is when they are no longer needed. In the meantime, with 12 million Americans out of work, food stamps are doing the job that they were intended to do. In my next column, I will be looking at the other side of the equation, the GOP "farm only" version of the bill. Stay tuned.

 

 

Bill Schmick is registered as an investment adviser representative with Berkshire Money Management. Bill’s forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquires to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.



     
The Independent Investor: Higher Education Just Got More Expensive
By Bill Schmick On: 01:36PM / Friday July 12, 2013
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More than 7 million students and their families depend on Stafford Loans, a federally subsidized loans program, to help them get through college. Barring an eleventh hour compromise, it looks like the interest rates on those loans will double costing new students $1,000 more to fund their educations.
 
The initiative to raise interest rates on these student loans from 3.4 to 6.8 percent was spawned by the GOP-controlled House and passed July 1. Those politicians, who have continued to pursue their bankrupt austerity agenda, argue that, at most, the increase will cost new students $20 extra per month. Given that the vast majority of these same officials make well over $700,000 per year, I can understand why they don't think this should be such a big deal to you and me.
 
Or maybe they feel that since total student debt is now over $1 trillion, another $1,000 or so won't matter. Its peanuts, they argue, for millions of American families in the grand scheme of things. Peanuts to them, but our children's education debt has now surpassed both credit card and auto loan debt, ranking it as the second-largest type of consumer debt after mortgage loans. In the last 13 years alone, the average amount of student loan debt has increased from $17,000 to $27,250 — a 58 percent increase. Tell me another outlay that has jumped that much in so short a time period?
 
Long-time readers of this column know how much I value education of all kinds. Ask yourself how doubling rates on student loans furthers the aspirations and future hopes we have for a better America? Those responsible for this legislation would be quick to answer that this spending cut helps balance the budget, reduce the deficit and therefore puts the country on a sounder financial footing.
 
I believe that is an extremely short-sighted approach to what could be the single most important investment this country can make. Our children are our future. The ability to afford a higher education is a far more important priority than spending billions more on immigration control or the drug war or the dozens of other programs that remain ideologically sacrosanct from these austerity cuts.
 
Unfortunately, my hope that the Democrats in the Senate would be able to overturn this piece of legislation, at least temporarily, was dashed on Wednesday when all 46 Republicans and some Democrat Senators opposed a roll-back. There is still time to come to a compromise, but time is running out. The new legislation will not affect those students already enrolled in college but new students enrolling in September of this year will be.
 
Personally, I liked Massachusetts Senator Elizabeth Warren's initiative the best. In the first bill she has authored since her election, Senator Warren would tie the interest rate on Stafford loans to the rate banks receive from the Federal Reserve Bank. That would lower the student loan rate from as high as 6.8 percent to 0.75 percent, saving our students thousands in interest payments.
 
It is a strange world indeed when the rates that are charged to our banks by the Federal government are considered appropriate, while doubling the rates on student (who are, in essence, America's future), is somehow deemed just and fair.
 
Bill Schmick is registered as an investment adviser representative with Berkshire Money Management. Bill’s forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquires to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.


     
The Independent Investor: Gay Marriage Comes of Age
By Bill Schmick On: 11:07AM / Friday June 28, 2013
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This week’s historic Supreme Court ruling could be a windfall for gays married and living in at least 13 states and the District of Columbia. That accounts for about two-thirds of same-sex marriages in this country. For the rest, things are not so clear.

The high court's decision to lift bans on federal same-sex benefits will have repercussions throughout this country and will send corporations scrambling to reassess everything from withholding taxes to fringe benefits.

For those living in the 13 "Free" states where gay marriage has been legalized, they will immediately gain access to more than 1,000 federal benefits, including Social Security and tax law changes. The income tax benefits for "married, filing jointly" will be beneficial, especially for couples with very different income levels. However, wealthier couples will probably pay more in taxes. That will be a small price to pay for many of the 114,100 same-sex couples living together nationally. Other economic benefits, in my opinion, will outweigh the costs.

For example, Social Security benefits for same-sex spouses will now be a reality. Until Wednesday, the Defense of Marriage Act denied them those benefits, which could cost a retired couple $14,484 a year and a surviving same-sex spouse up to $28,968 per year, according to the Center for American Progress, a human rights project.

Additional good news for gay couples is in the estate tax arena. Upon the passing of a spouse, the unlimited marital deduction now applies so all assets can pass to a same-sex spouse tax-free. Gift tax deductions will be legal as well.

Tax-deferred savings plans, such as IRAs and 401(k)s, will no longer be taxed (as they are now) before they are rolled over to a surviving spouse's accounts. Pensions can also be left to same-sex spouses. As such, gay couples will be entitled to survivor benefits under the Employee Retirement Income Security Act, a federal law that governs most retirement plans.

Companies are going to need to re-examine and overhaul many employee benefits such as health insurance coverage and taxes. Until now, the value of a gay spouse's health benefits was treated as taxable income, whereas heterosexual couples paid for spousal benefits from pretax earnings. The ruling could save gay couples thousands of dollars per year. Other benefits, such as flexible spending plans and medical leave, will need to be adjusted in favor of the same-sex couple.

Where uncertainty remains are in 37 states in which gay marriage is not recognized. Generally, federal agencies usually defer to the states in determining marital status. The devil is in the details and that’s where it gets really murky. Let’s say, for example, you were married in a same-sex ceremony in Massachusetts or New York but then moved with your spouse to New Jersey. Some federal agencies will recognize your marriage as legal, while others will defer to the laws of New Jersey where same-sex marriages have still not passed the legislature.

Divorce or establishing legal ties with children may also be dicey in states that do not recognize same-sex marriage. Unfortunately, if you are married, gay and happen to live in a non-Free State, the battles for you will go on. You will continue to face opposition, roadblocks and political obstruction. It will all be perfectly legal, protected by a patchwork of state laws, which will vary from state to state. Unless all 650,000 same-sex couples in this nation move to the Free States, I see years of litigation ahead.

Yet, I am confident that the end result will be as inevitable as that of the Civil Rights movement of the 1960s. To all of my same-sex readers out there, I offer my congratulations for a job well done.

Bill Schmick is registered as an investment adviser representative with Berkshire Money Management. Bill’s forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquires to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.



     
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Bill Schmick is registered as an investment advisor representative and portfolio manager with Berkshire Money Management (BMM), managing over $200 million for investors in the Berkshires. Bill’s forecasts and opinions are purely his own and do not necessarily represent the views of BMM. None of his commentary is or should be considered investment advice. Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of BMM or a solicitation to become a client of BMM. The reader should not assume that any strategies, or specific investments discussed are employed, bought, sold or held by BMM. Direct your inquiries to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com Visit www.afewdollarsmore.com for more of Bill’s insights.

 

 

 



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