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What Counts as an Existing MCA Position?

When applying for a merchant cash advance, funding sources look at the current loans you have to see if you already have an existing advance.  But what counts as an existing mca position?

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Other funding types that may be considered an existing position by lenders:

Daily repayment advances such as
bank statement loans

  Weekly payment financing.

  Monthly payments loans from certain lenders.

  Programs that accept existing positions

  Multiple existing positions O.K.

  No penalty for other debts that are not mca’s.

Business funding that do NOT count as an existing mca position.   

1. Installment:

Monthly or weekly installment transactions should not count as an existing position when applying for a cash advance.

Example:Monthly payments for car and personal loans are almost never included in the approval process.

2. Monthly repayment:

Anything that is repaid monthly is almost always considered a separate type of financing.

Most installment loans also have monthly repayment, but not all.  These will not be counted against your existing debt on an mca application.

3. Secured:

Secured loans are not considered in your businesses’ ability to repay a short term unsecured advance.    It is a different type of debt and not calculated in the analysis.

Existing real estate and equipment debt, as well as accounts receivable financing are not counted against you.   As a result, they will not affect your ability to get an advance, nor affect the amount of the advance.

4. Unsecured Revolving Lines

Unsecured lines such as credit cards and personal lines of credit are not included.     You can have multiple credit cards or lines of credit because they don’t affect your ability to get an advance against future receivables.

Different terms between the two are a main reason they are separated because  unsecured revolving lines usually remain open for years.

Short term advances are paid off in 3 to 9 months.    Underwriting knows that you will continue to have that unsecured debt with a minimal monthly payment that is low compared to the advance.

Make sure the new lender is not counting loans or advances you have already paid off.    Provide them with a payoff letter on all previous debts that no longer have a balance but may still show one on your credit bureau.

What counts as an existing mca position?

FAQ: Frequently asked Questions on an existing mca position.

What is an existing mca position?

An existing mca position is business financing that is considered the same type as a cash advance.   This is usually any financing with a daily or weekly payment.  Some monthly payment options may count as an advance, depending on who the lender is.

What business loans count against me when applying for an mca ?

Any business financing that has a once per business day repayment is almost always considered an existing cash advance position.

Do other monthly payment loans count against me?

Other monthly payment business debt does not count against your mca application.

Why does it matter if my business already has cash advances?

New lenders need to know if your business will have the cash flow to pay the new debt.   They also consider if you are a habitual cash advance borrower.  Lenders probably consider you may take another advance behind theirs.

Conclusion

Short term daily, weekly and sometimes monthly business financing do count as an existing mca position and therefore, your business may not be approved or for lower amounts.

Know the types of loans you already have when applying for cash advances and which one will count against.    This will help you understand which type of business loan to apply for and what to expect.

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Business Tax Extension Loan For October 15th 2021

Do you need a business tax extension loan to pay taxes by an extension date and haven’t come up with the funds?   The tax deadline is October 15th 2021, but 2021 estimated Quarterly taxes are still due on April 15th 2021!

Leverage the assets or cash flow of your business to pay IRS business taxes by October 15th, 2021.   Several unique programs available, below now!

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Apply above to: Pay IRS business taxes by the October 15th, 2021 extension. 

Multiple Programs to get approved through. 
Flexible criteria. 
Fast funding and closing. 

Get a business loan to pay the IRS extension deadline of October 15th 2020

Need the money to pay the IRS October 15th 2021 deadline?  Get your business tax extension loan now!

Several relatively unknown programs available.  Due to this year’s April 15th 2021 regular filing date extension, the new filing date is October 15th 2021.
The October 15th, 2021 extension deadline is NOT extended. 

1. Funding against the equipment your business owns. 

Businesses that have construction equipment or over the road tractor trailers can use their equipment to pay tax extensions.

You can get between 40% and 60% of the retail value of the equipment, depending on the year, make, model & condition.

Example: Your business owns a 2010 John Deer Front End Loader with a retail value of $60,000.    Based on a 40% Loan to Value, the offer would be $24,000.    The percentage will depend on the condition of the asset, maintenance records and the results of a site inspection.

A 60% valuation would give an offer of $36,000.    These ranges may vary from lender to lender.   The difference is that most lenders will not make this type of loan at all and it is also considered a specialty business loan.

Traditional banks will rarely make this type of loan.  When they do, they typically only offer approximately 10% – 20% of the value of the equipment and require real estate as part of the loan.

Therefore, if your business has to have money to pay the IRS extension amount and gets any offer close to that range, it should be strongly considered.

2. Funding against business property. 

When the IRS amount your business has to pay is high, then you may need to use business real estate.

The real estate will need to have at least 50% equity in order to have a chance to get the amount you need.    A 50% equity requirement seems like a high number.   Most lenders do not loan against 100% of the value of real estate and 65% to 85% is the maximum.

It is hard to qualify to get a loan to value higher than 70% or 75% of the appraised value.

3. Funding based on the cash flow of your business.

Another option is to fund against the cash flow of your business.  This may be the best option for businesses that are asset poor.

For Example: Your business has limited assets but strong business revenues.  You need $25,000 to pay by October 15th,  and business annual sales are $300,000.

Based on getting approximately 50% of monthly sales, $25,000 X .50 = $12,500.     An average offer will be approximately $13K.    Offers in this example could range from $10K to $30K depending upon other factors.

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FAQ Business tax extension loan 

Can I get a loan to pay business taxes by October 15th ?

There are several programs your business can choose from to pay
October 15th, 2020 business taxes.    Consider programs based on your company assets or cash flow. 

What if we can’t pay the full amount of the extension?

Refer to your Accountant.   Typically,  accountants recommend filing the return, paying as much as you can and communicating with the IRS on a payment plan.  

What can we do if we don’t qualify for enough to pay for the October 15th extension?

You may qualify for more than 1 type of loan.  A 2nd type of loan may allow your business to get the extra amount needed to pay the IRS extension balance.

Conclusion

If you need a business tax extension loan to pay October 15th, 2020 quarterly taxes quickly, look at alternative solutions.

Getting a business loan approval when the use of funds is to pay business taxes is harder to get than for other reasons.   Look at less well known options mentioned above, including  based on assets and cash flow.

Leverage the strengths of your business to get as many options as you can.  The business loans you qualify for may not be the ones you prefer.   Be open to alternatives and your business has the best chance to get money to pay the IRS or State tax extension balance!

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Service Locations

Customer service areas and service locations

Northeast Region:

Consultants representing the following Northeast cities can be contacted: 

Connecticut, New Jersey and Rhode Island: In Bridgeport, CT. In Camden, NJ. In Hartford, CT. In Jersey City, NJ. In Milford, CT. In New Haven, CT. In New London, CT. In Newark, NJ. In Norwalk, CT. In Norwich, CT. In Providence, RI. In Stamford, CT. In Trenton, NJ.

New York: In Albany, NY. In Batavia, NY. In Buffalo, NY. In Cheektowaga, NY. In New York City, NY. In Niagara Falls, NY. In Rochester, NY. In Schenectady, NY. In Seneca Falls, NY. In Syracuse, NY. In Yonkers, NY.

Pennsylvania, Maryland and Delaware: In Allentown, PA. In Baltimore, MD. In Bethlehem, PA. In Columbia, MD. In Dover, DE. In Harrisburg, PA. In Lancaster, PA. In Lansing, MI. In Lebanon, PA. In Manchester, PA. In New Castle, PA. In Philadelphia, PA. In Pittsburgh, PA. In Reading, PA. In Salisbury, MD. In Scranton, PA. In Towson, MD. In Weirton, PA. In Wilmington, DE. In York, PA.

Maine, Vermont, New Hampshire and Massachusetts: In Bangor, ME. In Boston, MA. In Burlington, VT. In Cambridge, MA. In Concord, NH. In Montpelier, VT. In Newton, MA. In Portland, ME. In Providence, MA. In Springfield, MA. In Warwick, MA. In Worcester, MA.

Midwest Region:

Consultants representing the following Midwest cities can be contacted:

Michigan and Ohio: In Akron, OH. In Ann Arbor, MI. In Canton, OH. In Cincinnati, OH. In Cleveland, OH. In Columbus, OH. In Dayton, OH.  In Dearborn, MI. In Detroit, MI. In Flint, MI. In Grand Rapids, MI. In Marion, OH. In Maysville, OH. In Muskegon, MI.  In Parma, Ohio.  In Toledo, OH. In Wilmington, OH. In Wyoming, MI. In Youngstown, OH.

Illinois, Indiana, Wisconsin: In Anderson, IN. In Carmel, IN. In Aurora, Illinois, Chicago, Illinois. In Elgin, Illinois.  In Rockford, Illinois.  In Joliet, Illinois.  In Lee’s Summit, Missouri. In Naperville, Illinois.  In Springfield,  Illinois.  In Peoria, Illinois.  In Elgin, Illinois.  In Waukegan, Illinois.  In Cicero Town, Illinois.  In Champaign, Illinois.  In Bloomington, Illinois.   In Decatur, Illinois. In Eau Claire, WI. In Fort Wayne, IN. In Gary, IN. In Indianapolis, IN. In Madison, WI. In Milwaukee, WI. In Naperville, IL. In Green Bay, Wisconsin.  In Kenosha, Wisconsin, In Peoria, IL. In Racine, WI. In Springfield, IL. In Waukesha, WI.

Iowa, Minnesota, and Missouri: In Bloomington, MN. In Columbia, Missouri.  In Davenport, IA. In Des Moines, IA. In Duluth, MN.  In Independence, Missouri.  In Kansas City, Missouri.   In Minneapolis, MN. In Overland Park, MO. In Rochester, Minnesotta. In Springfield, MO. In St. Charles, MO. In St. Joseph, MO.  In Springfield, Missouri.   In St. Louis, Missouri. In St. Paul, Minnesotta. In St. Cloud, MN.

Kansas, Nebraska, North Dakota and South Dakota: In Council Bluffs, NE. In Kansas City, MO. In Lawrence, KS. In Omaha, NE. In Wichita, KS.

South Region:  

Business owners can contact a city representative in the following cities for assistance:

Kentucky, Virginia, Washington, D.C., and West Virginia: In Alexandria, VA. In Arlington, VA. In Chesapeake, VA. In Hampton, Virginia. In Huntington, WV. In Kenner, VA. In Lexington, KY. In Louisville, KY.  In Lynchburg, Virginia.  In Newport News, VA. In Norfolk, VA. In Petersburg, VA.  In Portsmouth, Virginia.  In Richmond, VA. In Roanoke, Virginia.  In Suffolk, Virginia.  In Virginia Beach, VA.

North Carolina, South Carolina: In Anderson, SC. In Asheville, NC. In Cary, North Carolina. In Chapel Hill, NC. In Charleston, SC. In

Charlotte, NC. In Chattanooga, TN. In Columbia, SC. In Concord, NC. In Davidson, TN. In Dunn, NC. In Durham, NC. In Fayetteville, NC. In Franklin, TN. In Gastonia, NC. In Greensboro, NC. In Greenville, SC. In Henderson, NC. In Hickory, NC. In High Point, NC. In Kingsport, TN. In Knoxville, TN. In Maudlin, SC. In Memphis, TN. In Morristown, TN. In Murfreesboro, TN. In Myrtle Beach, SC. In Nashville, TN.  In North Charleston, South Carolina.  In Raleigh, NC. In Sanford, NC. In Lenoir City, TN. In Shelbyville, TN. In Spartanburg, SC. In Wilmington, North Carolina.  In Winston-Salem, NC.

Florida: In Cape Coral, FL. In Clearwater, FL. In Daytona Beach, FL. In Jupiter, FL. In Fort Myers, FL. In Ft. Lauderdale, FL. In Hialeah, FL. In Jacksonville, FL. In Lakeland, FL. In Melbourne, FL. In Miami, FL. In Ocala, FL. In Pensacola, FL. In Kissimmee, FL. In Naples, FL. In Orlando, FL. In Ormond Beach, FL. In Palatka, FL. 

In Palm Bay, FL. In Pensacola, FL. In Port St. Lucie, FL. In Saint Petersburg, FL. In Sanford, FL. In Tallahassee, FL. In Tampa, FL. In West Palm Beach, FL. In Winter Haven, FL.

Alabama, Georgia, and Mississippi: In Atlanta, GA. In Augusta, GA. In Birmingham, AL. In Gulfport, MS.  

In Hoover, AL. In Huntsville, AL. In Jackson, MS. In Mobile, AL. In Montgomery, AL. In Savannah, GA.   In St. Mary’s GA. In Talladega, AL.

Arkansas and Louisiana: In Baton Rouge, LA. In Fayetteville, AR. In Forrest City, AR. In Lafayette, LA. In Little Rock, AR. In Metairie, LA. In New Orleans, Louisiana. In Baton Rouge, Louisiana.   In Shreveport, Louisiana.  In Lafayette, Louisiana.  

Oklahoma and Texas: In Arlington, TX. In Austin, TX. In Bartlesville, OK. In Beaumont, TX. In Corpus Christi, TX. In Dallas, TX. In Edinburg, TX. In El Paso, TX. In Ft. Worth, TX. In Houston, TX. In Killeen, TX. In Lafayette, LA. In Mission, TX. In Muskogee, OK. In Oklahoma City, OK. In McAllen, TX. In New Braunfels, TX. In Round Rock, TX. In San Antonio, TX. In Shawnee, OK. In Sugarland, TX. In The Woodlands, TX. In Tulsa, OK.

West Region:

Companies located in the following cities can contact a local representative for assistance:

Colorado, Idaho, Montana, New Mexico and Wyoming: In Albuquerque, NM. In Aurora, CO. In Boise, ID. In Cheyenne, WY. In Colorado Springs, CO. In Denver, CO. In Helena, MT. In Lakewood, CO. In Santa Fe, NM.

Arizona and Utah: In Albuquerque, AZ. In Avondale, Arizona.  Chandler, Arizona.  In Flagstaff, AZ.  In Gilbert, Arizona.  In Glendale, Arizona.  In Goodyear, Arizona.   In Mesa, AZ. In Nogales, AZ. In Ogden, UT. In Phoenix, AZ.  In Peoria, Arizona.  In Provo, UT. In Scottsdale, AZ. In Salt Lake City, UT.   In Scottsdale, Arizona.  In Surprise, Arizona.  In Tempe, Arizona.   In Tucson, AZ.  In Yuma, Arizona.  In San Tan Valley, Arizona.   

Nevada, Oregon and Washington: In Bellevue, Washington. In Eugene, OR. In Everett, Washington.  In Henderson, NV.  In Kent, Washington.  In Las Vegas, NV. In Olympia, WA. In Portland, OR. In Reno, NV. In Seattle, WA. In Olympia, WA. In Paradise, NV. In Portland, OR. In Renton, Washington.   In Salem, OR. In Seattle, WA. In Sparks, NV. In Spokane, WA. In Tacoma, WA. In Vancouver, Washington.  In Yakima, Washington. 

Alaska, Hawaii and California,

Representatives service the following cities in the Western Region: In Anaheim, CA. In Anchorage, AK. In Bakersfield, CA. In Carlsbad, CA. In Chula Vista, CA. In Fontana, CA. In Fremont, CA. In Fresno, CA. In Hayward, CA. Ini Honolulu HI. In Irvine, CA. In Madera, CA. In Modesto, CA. In Merced, CA. In Oakland, CA. In Ontario, CA. In Oxnard, CA. In Riverside, CA. Roseville, CA. In San Francisco, CA. In San Jose, CA. In San Diego, CA. In Santa Ana, CA. In Santa Clara, CA. In Santa Rosa, CA. In Sacramento, CA.

In Salinas, CA. In San Bernardino, CA. In Santa Barbara, CA. In Santa Maria, CA. In Sunnyvale, CA. In Stockton, CA. In Thousand Oaks, CA. In Vallejo, CA. In Ventura, CA. In Visalia, CA.

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Proof of Income: All the Ways To Prove Income

Proof of Income

Definition: Documentation or other evidence that is used to prove the income of an individual or business. Apply below for business loans that assist business owners with proving their income.

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Examples of Proof of Income: 

A business owner applies for a business loan and is approved.
One of the closing stipulations is to show evidence of income.  The following is a list of the most accepted forms of proof for businesses and individuals:

1. Employer Pay Stubs
2. Tax Return
3. W-2 Statement
4. W-9 Statement
5. Bank Statements
6. Other Deposit Account statements

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Did you know?

Proof of your income is required for larger loans, such as a large business loan or personal loan.

If a business owner cannot show documentation of income, they can consider other types of business loans that may not require it, such as certain asset based loans.

Customers cannot always show the type of documentation of income that is being requested.
What if you cannot provide documentation of your income? Then see our FAQ Frequently asked questions below.

FAQ proof of income

What is proof of income?

Proof of income is documentation used to verify personal or business income.

What is accepted as proof of income?

Employer pay stubs, tax returns, business or personal bank statements and other account statements are usually accepted as proof of income.

Why do I have to prove my income?

It is often required to verify you can make future payments that you are not making now. This is often for a new car, apartment or mortgage payment. It is also requested for personal and business loans and when buying into franchises or selling a business.

Can I add my spouses income to my income?

You can add spousal income to yours when you represent it as household income. List your income alone when you apply for something individually. If you do not have income and are applying alone, itemize it as spousal income or household income.

Can my credit prove my income?

Good credit shows you have enough income to pay the debts on your credit report now. It does not show if you can pay new debts or loans. The credit report also does not include all of your monthly expenses.

Are bank statements proof of income?

Bank statements may be used to show gross income or receipts. They cannot show all business or personal deductions from your gross income, or net income. Lenders wants to know if your business has the disposable income to service the new debt.


There are other funding Options.   Call us to discuss these options.

What is Proof of Income?

Evidence of Income is requested for many reasons.  Most often they are completed when someone is requesting a product or service, or entering into a Contract or Relationship with someone else.   They are not always looked at the same way.   What is looked for is totally up to the party that is pulling the report and also what they decide about the information.

The following are frequent requests and statements:
– I do not have Proof of Income.  What can I do to provide what is needed?   Other ways to show evidence of income sending Bank Statements.  If all of a person’s income goes into 1 Account, then the most recent bank statements for that account may be used to prove income.  This can be done for a business or an individual.

In summary: Questions and issues addressed:
What is proof of income? How can I prove my income? Give your pay stub, copy of paycheck, tax return, or bank statements and other ways to prove income.

Learn more:

Recent examples from the Web:

Evidence of Income

Contact us today for program options.

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Business Optimism in April Highest in 6 months

Business optimism is at a 6 month high.   According to statistics by the National Federation of independent business, optimism by businesses is the highest since late last year in several key categories. The organization’s optimism index increased to 92.1, up from 89.5 in March 2012, and the 2.6 point gain was the highest jump since October 2010.  The survey size was 1,873 firms.

According to the statistics, businesses are optimistic in multiple areas, including planning to hire new employees, with 6% of respondents planning on hiring new employees versus 0% in March 2013,  and 1% in January 2013.  23% planned on moving forward with increased capital spending versus 20% in December 2012.  4% expected higher sales versus none in the previous months.   Another important area of improvement is an increase in increased sales prices from 0% at the end of 2012 to 3% in April.   Businesses have confidence that consumers will be willing to pay rather than be driven off by higher sales prices.

These statistics are not reflective of a strong economy, rather continuation of a slowly rebounding economy.  The surge in the stock market over the last 2 years has been cited as a reason for optimism by many companies in other recent polls.

There has been virtually no shift in businesses’ view of an ease in credit conditions, which
continues to be viewed as difficult with tight access to credit markets.  Businesses continue to report having difficulty obtaining the financing needed for new hires, and other capital spending needs such as expansion.  These tight credit markets are causing many businesses to research alternative growth financing such as accounts receivables financing, contract financing, loans based on gross sales such as bank statement loans.  These are loans that businesses can get using the cash flow of the business.  This funding can be accessed through networks  specializing in alternative business loans.

The National Federation of Independent Businesses stated in summary that 4 of the index’s 10 main components measured contributed to most to the increase in the optimism percentages.   The SBA, Small Business Administration states that small businesses are considered to be less than 500 employees, which represents 99% of all companies.

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Google Circles – Why do it? November 11, 2016. 11/11/2016

Why participate in Google Circles?
Adding people to your Google Circles and other people adding you to their circles is something which should be done because it continues adding significant value to the articles and blog posts you are already writing, including posts on your website and in forums.

How does it add value to me? The more people that have added you to their circles, the more weight everything you write carries.  Think of it as being an author.  Each person that adds you to their circles says you are credible.  This increases the weight and value Google assigns to you as an author and what you publish.  The more weight Google applies to you as an author,  the higher your rankings will be for what you publish.  Google has stated that it will continue providing results from sources with the highest credibility.

How can I participate in Google Circles?
Establish a G-mail account.  If you have a G-Mail account, you have a Google plus option in the far left of the top menu bar you see while reviewing E-Mail.  Google plus is a forum where you can post any thoughts, articles of interest you have seen, and more.   A main option is to add people to your Google circles or for other people to add you to their circles.  Add people organically.  As you come across them through your regular work, you can add them and they can choose to add you.  If you comment on their work or their google plus posts, they may add you.  If you have a rapport established with someone already, you can ask them to add you to their circles and you can reciprocate.  You can also contact friends and add each other to your circles.

As you obtain more credibility, you will notice that many of the articles and blogs you write will rank significantly higher.  They will be read and approved of by some in your circles.  The ranking of your publications is also boosted by those whose circles you are in that click
on, read and recommend your articles and blogs.

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Why Businesses get hurt if debt ceiling isn’t raised

Many business owners are conservative.   They obey the laws, watch their spending, and are cautious.   Many will say that the Government should not increase the debt ceiling knowing that the Government will be taking on more new debt.    It is a good idea for the Government not to take on new debt, but not this way.

Currently, the Government spends over 40% more than it takes into it’s coffers in revenues.   Economists have argued in past years,  by what percentage the Government can cut it’s spending in one year without hurting the economy, and many Economists felt that a cut of just 4% per year would slow down the economy short term, even if long term it benefits the country.

If the debt ceiling is not raised, or raised within one or two days after the deadline, the stock market will take a major dive.  Individuals will pull back on spending until they are comfortable with what will happen.  Large Corporations will follow suit and put on hold and delay any hiring or expansion plans.    Interest will continue to be paid or the country would suffer a true technical default.   World markets will truly be aghast and dive mostly due to the reckless self destruction.   Moody’s and Standard and Poors may impose another credit downgrade, further aggravating markets.

The Government will truly be forced to choose who receives Government money and who does not.   Watch in amusement as some of the same Congressmen and Senators who voted to not raise the debt ceiling suddenly demand that the flow of money continue for their districts.   Unemployment benefits, assistance for farming, highway money, and Government contractors will undoubtedly be among the first victims of a massive spending cut.   Companies that provide products for the military will also take massive cuts because Congress will make every effort to pay the soldiers.   If the department of education takes cuts this will cut funding to colleges and schools.   Other departments such as the Commerce department, the department of labor, and the State Department would all very likely take cuts.

While many people feel this would be good in principle, the state department includes funds for Embassies and Consulates, including the defense of those organizations.  The commerce department includes food safety and inspection.   Funding for Ports and border security have to be considered.    If the Department of Homeland security is cut, then many functions now happening would slow down.   Many of these employees would be temporarily cut.

The media effect would be tremendous.   Media outlets will interview unemployed and furloughed employees who will vent vicious frustrations.    Public opinion polls will reflect the worst ratings for Congress ever in it’s history.    Such a situation will be guaranteed not to be long term.    Congress will then quickly raise the debt ceiling.   Renewed talks of whether tax increases are justified in order to pay for desired services will begin.    People will realize the value of services lost, previously taken for granted.    Once it is accepted that the national debt must be address long term, their new found dependence of services will be weighed versus revenue increases and future proposed spending cuts.

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Why the Debt ceiling is the most dangerous battle

Of the 3 major battles that are in process, the Fiscal cliff, the delayed spending cuts and the debt ceiling, the debt ceiling holds the most danger to the economy and the country.   The reasons have to do mostly with the dollar amounts are larger, those larger cuts are more sudden and the bond rating agencies have targeted a debt ceiling fight as a bellwether of whether they will downgrade the countries credit rating again.

Let’s compare all three.   In the most recent fiscal cliff battle, revenue rates were increased for those earning over $400,000 per year form 36% to 39%.    Those with incomes over $400,000 represent approximately 1% of the population.    Spending cuts were supposed to take place in the range of $1.6 trillion over 10 years through and where those cuts are supposed to occur is still a matter of debate.   Republican House Speaker John Boehner
(R) – Ohio, Senate Majority leader Mitch McConnell, (R) – Kentucky, and many in the rank and file membership of the House and Senate want to have major cuts in entitlement programs such as Medicare and other Government programs, possibly including the department of Education, the EPA, Environmental Protection Agency, and many others.
The most significant fact is that the cuts are supposed to be approximately $1.6 trillion over 10 years, which represents $160 billion per year, which represents only approximately 5% of the Government’s budget per year.

– The debt ceiling is much more dangerous for 2 reasons.    If it is not raised, it represents
a much larger cut, 40% to 45% immediately versus the 5% or somewhat larger cut being
negotiated in spending within the next 60 days.

Example of the numbers:

The government’s current budget is approximately $3.4 trillion dollars per years.   At the same time, government takes in approximately $2.2 trillion dollars per year in revenues, creating an approximate $1.2 trillion dollar budget deficit.   It has to borrow the difference. If the debt ceiling is not raised, it cannot borrow any money.    This means the government will have operate on $2.2 trillion per year instead of $3.4 trillion.    A shock of 40% plus in spending cuts will trigger massive austerity reductions in programs.    If these occur, expect the shock to immediately reverberate through the general public within days or less.

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Will Social Security checks be guaranteed post fiscal cliff?

In last years June 2011 fiscal cliff fight, President Obama went on the nightly news to state that if there was no agreement on the Fiscal Cliff, then it could not be guaranteed that Social Security checks would go out.    In this years fight, the president has not stated the same message with regard to Social Security.    This creates the question,  if there is no agreement on the fiscal cliff, does the same danger apply that Social Security checks may not be issued, or may not be issued on time?

In this round, the president and other lawmakers have talked less specifically about a variety of programs that will be cut or not receive funding and how it may affect certain sectors of the population.   It seems that the politicians do not want to frighten only one group, and in this case it would be the most vulnerable group within the population, Seniors and the elderly.    The truth is that certain programs will be cut and they may include Medicare and Social Security.   It may not have been specifically talked about on this occasion but it is a real possibility.

The debt ceiling will be raised, that is certain.   The only real question is if it will be raised before damage is done to the economy.    There are several ways through which the economy may be damaged if the debt ceiling is not raised by the deadline.

– The stock market will react very negatively in fear that spending may be cut over 40%
instantly.   Markets will also react negatively due to the fact that the bond rating agencies
Moody’s has stated that they would very likely lower the ratings of U.S. Treasuries if
there is not an agreement, preferably longer term agreement on the Fiscal cliff.

– If the debt ceiling is actually broached beyond the hard deadline and not solved, there
would be spending cuts in the order of 40% + instantly.  This would be a major shock
to the economy.   A sudden Government decrease in spending of over $1 trillion would
definitely be a shock to the system.  Politicians would be unwise to play politics with this issue.

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Fiscal Cliff – Why many lawmakers don’t want to stop it

It appears that certain lawmakers don’t want to stop the fiscal cliff.   Those reasons seem clear to be politically motivated rather than for the good of the country.

Many lawmakers state that they will not sign on to the fiscal cliff offers that have been presented thus far because those offers would involve raising taxes on those earning more than $250,000 per year and they simply cannot vote for that under any circumstances.   Some democrats have insisted that they cannot vote for any spending cuts that would cut Medicare and some other programs.

The part that is incomprehensible to close observers is that while this belief may be respected, if lawmakers do not come to an agreement, taxes will increase far more on everyone rather than modestly on the affluent.   Spending cuts will be significant across the board for many programs rather than just for some programs.

If lawmakers do vote any agreement, in future elections, Republican incumbents fear they will be accused of raising taxes as well as agreeing with, and promoting Obama’s agenda by challengers from the right in Republican primaries in their district.  Democratic incumbents are concerned they will be attacked for cutting beloved social programs such as Medicare and social services in democratic primaries in their district.

As a result, it appears that many politicians would rather allow large tax increases, large spending cuts, a possible additional U.S. Credit downgrade, major decreases to the stock market, and another recession actually occur, rather than risk accusations by political challengers in future elections.   Stay tuned, the ride is just beginning.

Update 01/13/2013   –   The fiscal cliff was partially avoided and delayed.   The revenue increase aspect was agreed upon, while the spending part of the deal, which is really half the equation, was simply delayed for 2 months, as an agreement could not be reached.  Political heads of Government came to this agreement at the last minute, while rank and file politicians in the house, especially Republicans, voted against a deal.   It would have been interesting to see if the politicians that voted against it, over the course of the two to three weeks afterwards would have still insisted on their district receiving the same level of Government spending.   After all, they certainly give the impression that they want to cut spending, only not in their districts.