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CNN IN THE MONEY
Reasons Why You're Paying More at the Pump; Cost of Running for President Going Up; The Alternative Minimum Tax
Aired March 31, 2007 - 13:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
FREDRICKA WHITFIELD, CNN CORRESPONDENT: Diplomats are exchanging notes as a standoff between Britain and Iran moves into its second week. Fifteen British sailors and marines are still being held in Iran. They are accused of illegally crossing into Iranian waters. Britain says they were in Iraq's territory. Both sides have exchanged diplomatic notes. Their contents have not been disclosed, however.
President Bush blasting the Democratic-controlled Congress over Iraq war funding bills. Both measures have troop withdrawal time lines attached. In his weekly radio address Mr. Bush says he will veto any measure that has a withdrawal date attached.
Another worry for pet owners, more products are now on the pet food recall list. Hills is recalling its prescription diet M/D Feline Dry Food. It's the first dry food added to the list and Purina is pulling its Alpo Prime Cuts in Gravy, wet dog food. The recalls follow reports of dogs and cats dying from kidney failure after eating the food.
In Montgomery, Alabama, a deadly collision between a Greyhound bus and a car. The driver of the car was killed and 20 other people on the bus were injured in this morning's accident on Interstate 85. Police say the car was headed the wrong way on the interstate. The bus, carrying 49 passengers, was on its way to Georgia.
Police in Highland County, Florida, face questions over their arrest of this little girl, six years old. Reports say the kindergartner was handcuffed and taken to jail after allegedly hitting her teacher. The girl's mother says she is shocked over her child's treatment, and she's considering legal action. The girl is facing one felony count and two misdemeanors.
An update of the top stories at the bottom of the hour, now time for IN THE MONEY.
TOM FOREMAN, CNN CORRESPONDENT, IN THE MONEY: Welcome to IN THE MONEY. I'm Tom Foreman sitting in Ali Velshi. Coming up on today's program, why the Iran mess isn't the only reason you're paying more for a tank of gas.
Plus the cost of running for the president just keeps going up and up and up, and a boss who gets it. Imagine that. Customer service really does count.
Joining me today Jennifer Westhoven and Polly LaBarre, great to have you all here. Are you upset about gas prices because I am?
POLLY LABARRE, CNN CORRESPONDENT: I'm not upset about them. I'm upset about how little people actually are seeming to notice it. There's a striking study from U.C. Davis that took a look at two five year comparable periods 1975 to 1980, prices went up 20 percent consumption went down 6 percent. The last five years prices have gone up 20 percent and consumption has only gone down 1 percent. People are saying now I'm not going to worry until it gets to $10 a gallon.
FOREMAN: Why do you think that is, we just that wealthy?
JENNIFER WESTHOVEN, "HEADLINE NEWS" CORRESPONDENT: I take the subway so I'm so lucky; I do not have to suffer.
FOREMAN: You New Yorkers with mass transit. The rest of us have to drive.
WESTHOVEN: I read and San Francisco they are looking at prices that could crack record numbers this weekend possibly. That's really outrageous. That's much faster, I mean we usually have a run up around this time of year but that's much faster than normal and it's the kind of thing where I think that people could get really upset if we start breaking records this fast through the rest of the country.
FOREMAN: This is a time bomb for the elections out there. I think that these candidates are walking around saying what ever happens to gas prices can make a huge difference to them. Look at California, 55 electoral votes sitting out there and those people are paying a lot and getting unhappy.
Our first guest says the sky-high oil prices have left us right for a recession. The candidates don't want to hear that. Joining us now is Peter Beutel, president of Cameron, Hanover an energy risk management firm. Thanks for being with us. Let's start with the recession threat. Why do you say that?
PETER BEUTEL, PRESIDENT, CAMERON HANOVER: We've had a little bit of trouble here recently, a lot of worry about the Fed raising interest rates. It recently said that doesn't appear immediately likely, but a lot of companies that have seen all kinds of costs increase, heat, transportation, electricity, these companies now that they see energy prices jumping again are likely to say these prices are here forever. Let's go ahead and raise our prices or we're going to go out of business.
WESTHOVEN: Peter things are pretty tough right now in San Francisco for gas. That may be something temporary just for them, but do you think that we're likely to see, you know, is $3 gas the new normal?
BEUTEL: I don't think there's such a thing as normal in the oil markets. We have cycles and we have trends. I believe that once this is over we will see prices head lower, longer term, and say in four to eight years. It's just that right now prices are extremely high, but if we do have a recession, prices will come down and the good news is once we come out of that recession, at least historically, gasoline prices have not followed for a number of years.
LABARRE: Peter I'm actually interested in the demand side. It's really interesting to me that the prices are going up and people sort of have this ho-hum reaction to it. So the only thing individuals can really do is affect the demand. What do you think individuals should be doing and how we should we thinking about our own habits and behaviors as consumers?
BEUTEL: If we could each cut out one out of 10 trips, I'm not talking about commuting but the discretionary trips that you take during the week. If we could ask a neighbor, you know, are you going to the store on Friday, I'm going on Tuesday, can I pick you up something fresh on the day I go. If we did a little bit of car pooling, if we just were to switch cars so the person in the family goes the farthest drives the most fuel-efficient vehicle we could save and cut into demand, and that would definitely lower prices.
FOREMAN: Peter, I don't like my neighbors that much so that's not going to happen. Let me ask you this, I'm about to buy a car. Should I get a hybrid car, and the reason I ask this is because I keep looking at the fuel difference, and it's not that great for a huge limitation on what I have to choose from and they are not cheap.
BEUTEL: Well, you know, this is the thing. It may not make sense to you individually, but I think as a society we certainly have to start buying a lot more hybrid cars. I don't know if it works for you, but it works for us.
WESTHOVEN: Aside from hybrid cars, are there any other big policy initiatives that you think, you know, from where you're sitting, have the best chance of being effective, of really doing something. We have some out there that a lot of people say that's just lip service. What do you think would really work?
BEUTEL: Well, I think a lot of the things we're looking at like ethanol and bio-fuels, certainly an increase in wind power and solar, every little bit helps. I tend to be a political moderate who wants to take the best ideas from both sides of the aisle, and I kind of wish they would stop seeing things in red and blue and started seeing things a little bit more clearly.
LABARRE: Don't we all.
FOREMAN: Let me ask you something about this. What is really making this happen? I always hear people talking about supply and demand, and I understand supply and demand, but nobody ever goes to buy a barrel of oil and it's not there. This is the perception of supply and demand because the demand has always been met, so what's really making this happen?
BEUTEL: Well, it's a combination of factors this year. First of all in January and February normally we see gasoline demand just drop right off the cliff after New Year's Eve. This year that didn't happen, and it only stays steady in 20 percent of the years so a very, very strong record January/February demand. Normally we see refineries take down units for maintenance during January, February, and March. This year we also had unscheduled down time which is a polite way of saying fires, explosions, power outages, so these factors have already made this market susceptible to the upside when this Iran event occurred, prices just started screaming.
FOREMAN: You made a prediction in January on this show about the free market, that the cost of a barrel could drop to $20 a barrel. First of all, do you still stand by that, and if you do, does that mean that my price at the pump could drop to $1 a gallon?
BEUTEL: Well, it depends what state you live in. If you live in Texas or New Jersey, the answer is yes, you could pay $1 a gallon, if you live elsewhere, it could be $1.25, $1.35.
FOREMAN: You're serious about this?
BEUTEL: Yeah, yeah. This has happened so many times in the past, you know, that I expect it will happen again. The cycle goes up it discourages demand; it often gives us a recession. It encourages supplies. Right now there are hundreds of projects being worked on right now that will develop oil, natural gas, ethanol, biomass, solar, wind. At these prices you could probably find oil in your backyard if you drilled, if you drilled deep enough.
FOREMAN: Well Peter Beutel, if my gas drops to $1 a gallon you come back and I'll buy you a tank on me because I don't think it's going to happen. Peter Beutel, president of Cameron Hanover an energy risk management firm. Thanks for being with us.
When we come back, why the price for running for the White House keeps going up like the cost of running to the grocery store. Stick with us.
FOREMAN: It's the first major fund-raising hurdle of the 2008 presidential campaign. The candidates must now open their books and show how they measured up in the first three months of the year in the race to raise absolutely boatloads of cash. We're still more than a year-and-a-half away from the election, but some candidates are being counted out way before the first primary vote is cast so here to help us sort all of this is Karen Timulty "Time" national political correspondent back in the town I live in, she is joining us from Washington. Thanks for being here Karen.
KAREN TUMULTY, NATIONAL POLITICAL CORRESPONDENT, "TIME:" Thanks, Tom, for having me.
FOREMAN: Why on earth is this election cycle moving up, up, up, up, up? It seems like it's never stopping now.
TUMULTY: There are a couple of things going on here. One is by many measures this is the most wide-open presidential race since 1928. On both sides the field is completely open. You don't have an incumbent president running for reelection, you don't have an incumbent vice president looking for a promotion, so a lot of these candidates see this as the best shot they are going to have. The next thing that's happening is that a lot of states have moved their primaries up to February 5th, something like 25 states will have had their primaries by the middle of February.
FOREMAN: So we're really only a year away about 10 months away from really the first voting.
TUMULTY: And really, you know, practically speaking, what this means is that if you want to be a serious candidate you're going to have to have a national operation up and running by the third quarter of this year. You won't be in the situation of, you know, you can pick up a little bit of momentum in Iowa, a little bit of momentum in New Hampshire and then have six weeks to kind of take off a long runway. You don't have that luxury this time.
FOREMAN: What kind of money are we talking about here? As these reports come out, run me through the big names. What sort of dollar figures should we see coming in as to how much they have raised and how bad is it for them if they have not?
TUMULTY: Well, I can sort of tell you what the talk on the street is and just to put this in perspective, when Al Gore and George Bush turned in figures of $7 and $8 million for fund-raising in the first quarter of 1999, it blew everybody away, these were record amounts.
Now you look at a campaign like Hillary Clinton, people are talking that she could have over $30 million, over $40 million this time around. Barack Obama could be well within the 20s. These are, you know just extraordinarily huge amounts for candidates to be raising this early in the game.
FOREMAN: Where are they getting this money, because I don't know who can give them that kind of money?
TUMULTY: Well, the limit, the individual limit is $2,300 for the primary and $2,300 for the general, so what you have to do is find a whole lot of people who can give that amount of money, and so the people that are being turned to are called bundlers, the kind of people who are not only rich enough themselves to write these kinds of checks, but have a lot of friends who are, too.
FOREMAN: And when they do this, do they tend, for example, go to a family and say OK we will get five checks from one family to aggregate this, or is this all individual people or what?
TUMULTY: Or to a corporation or to a law firm or to an industry. That is going to be one of the interesting things to see in these numbers. The other place where candidates are fund-raising for, you know, the first time in as big a way as they are this year is the Internet, where you get a lot of very small contributors, but it's relatively inexpensive to reach them.
FOREMAN: If it's so much about the money now, I mean, this starts sounding like the best politicians money can buy and we the voters don't really matter a whole lot? TUMULTY: Well, it does you know, one of the criticisms, and I think it's a very valid criticism, is that this really distracts candidates. They are spending so much time dialing for dollars, so much time going to fund-raisers, that they really don't have a chance to think about why they are running and develop their message and figure out what it is they want to say to voters, so you could also have a situation where a really well-financed candidate gets out there and the voters take a look at the guy or woman and go uh-ugh.
FOREMAN: Does this mean likely that you could have such a surprise or more unlikely?
TUMULTY: I think that the candidates that don't have the money, the table stakes to play, are not going to get very far, but it keeps very open the possibility of the surprise candidate who has plenty of financial resources but ultimately turns out not to have a message that really connects with voters.
FOREMAN: Here's the big question in all of this. Once we get past this first hurdle here and we look at who has the money and who doesn't, is there anybody out there who just is a great candidate? Could there be such a person who could get into the race if they are not already tens of millions of dollars into it?
TUMULTY: Right now there are a few people who could, Mike Bloomberg, the mayor of New York City is being talked about.
TUMULTY: He has billions of his own.
Somebody like an Al Gore on the Democratic side, somebody like Newt Gingrich on the Republican side who have enough of a following, enough of a name, they -- somebody like that to get a late start and be a real contender in this race, but everybody else, if you don't have the bank account now, you essentially don't have much of a road ahead of you here.
FOREMAN: Karen, before we get away. One quick thing, just give me a number here. The next person who fills the White House, roughly how much will they have spent to get in there?
TUMULTY: Oh, I'm hearing numbers, you know, just to get the nomination, numbers north of $75 million and $100 million.
FOREMAN: Wow, I heard one estimate of a half billion to actually win the office. Unbelievable. That counts me out almost certainly. Karen Tumulty "Times" national correspondent joining us from Washington. Thanks so much.
Coming up after the break, the big stories creating a buzz over on Wall Street this week and what they actually do mean to you.
WESTHOVEN: Welcome back. The Fed chairman giveth and the Fed chairman taketh away. The stock market real wobbly earlier this week thanks to some comments made by Fed Chief Ben Bernanke. Susan Liscovicz is going to join us now from the New York Stock Exchange to tell us some of the color about what happened. Susan, there was really drama here early in the week. Things were looking ugly for a few days on this real fear that maybe things that have been going wrong in the housing markets, the troubles there, were going to spill over into the rest of the economy.
SUSAN LISCOVICZ, CNN CORRESPONDENT: Right, and, you know, Jennifer, it's the Fed's decision to see what's the greater threat. Is the housing the problems that we're seeing in the housing sector so great that it's going to spill over into the economy, but, on the other hand, we have oil prices for instance, at six-month highs. So inflation is still very much a threat. One headline this week said "Cranky Bernanke." You know just a week earlier, stocks were off to the races because the Fed kept rates unchanged, but left out this key phrase that had been in the ten previous statements. This week Bernanke says, hey, listen; inflation is still public enemy number one.
LISCOVICZ: Which means that they are more inclined to raise interest rates if inflation is still a problem. Guess what? Stocks tanked. So the Fed is between a rock and a hard place and investors are worried.
WESTHOVEN: All right. Here's General Motors they do this job of, you know, not completely out of the woods, right, but they have really turned around billions and billions dollars of losses. They managed to make a profit in the last quarter. They say let's give our executives some bonuses and boy did they get it from the union.
LISCOVICZ: Well, yes. Look at the timing of this. This summer the UAW, which has given back an unprecedented amount in terms of jobs and in terms of health care benefits, you know, is going to sit down on these very important contract talks and, yes, GM has made great strides, but GM is still losing money and while it's announced it's not giving cash bonuses to its top people, it is giving Rick Wagner, the CEO, the vice chair and CFO some nice stock options, and they are worth a few million dollars so that doesn't sit well with the rank and file and that's sure to be up for discussion because give-backs after all are certainly going to be something that the big three are going to expect.
WESTHOVEN: Yeah. It certainly makes sense that when they start giving out the big options packages the union says don't come over here and ask for health benefits. That's out of control.
LISCOVICZ: To be fair, Rick Wagner's pay has been coming down considerably. He made $12 million in 2003, but GM was making money in 2003. It is still in the red, making great progress, but he's still making money, that's good for him.
He's got a big job ahead of him. WESTHOVEN: We certainly hope the whole company turns around. That will be better for everybody there. Thank you, Susan from the New York Stock Exchange.
LISCOVICZ: You are welcome Jen.
FOREMAN: Hotel room prices up 15 percent globally last year according to an industry watcher. Good news for hotel operators, bad news for bargain hunters. Jim Boulden has a look at what that means for all of you planning summer vacations.
(BEGIN VIDEO CLIP)
JIM BOULDEN, CNN CORRESPONDENT (voice over): Hotel prices have been rising steadily since 2002. After 9/11, hotels took to cutting prices and throwing in incentives to get people back. But in 2006 people saw few reasons not to travel. So hotels.com says an increase in traffic led to an average 15 percent jump in room rates.
PATRIK OQVIST, HOTELS.COM: The hotel's stock, at least in the very near term, is actually fixed, so when demand changes, so when travel patterns increase and people start travel both for business and leisure hotels respond by being able to milk more prices out of the market.
BOULDEN: So where did it cost you more to stay in 2006? Many of the biggest price raises were in Asia. Bangkok led the way, Jerusalem also jumped more than 50 percent and London and Seoul also saw a big jump. Not every city followed, prices fell in places like Cape Town, Dubai, Washington, D.C., and Dublin. Even Moscow fell slightly, though the Russian capital is still the most expensive city to rent a room. On average $337 a night, New York also topped $300.
Big cities are adding more hotel rooms, and during the downturn a number of hotels took the time to renovate, but even with new rooms coming online this year, cheaper airfare means even more people are expected to travel, allowing hotels to potentially keep raising prices. Even though hotel prices did rise strongly here in London last year, Hotels.com says it's still cheaper to stay in a room in Europe than it is in the United States and in Asia. So maybe next time you're traveling here in Europe, you might want to upgrade to a suite.
Jim Boulden, CNN, London.
(END VIDEO CLIP)
FOREMAN: Coming up next on IN THE MONEY, we'll talk to a hotel boss who says the customers should be king in any business. Stick with us.
WHITFIELD: Hello. I'm Fredricka Whitfield. Now in the news, Iran and Britain exchange diplomatic notes as Tehran holds 15 British captives on this ninth day. No word yet on what the notes says.
Meanwhile, an Iranian official says the British sailors and marines may be tried for entering Iranian waters. Britain insists the troops were in Iraqi territory.
President Bush today slamming Congressional Democrats for non-war items added to an Iraq war-spending bill. In his weekly radio address the president also repeated a vow to veto a final version of the bill if it still includes a deadline for U.S. troops to leave Iraq.
More pet foods added to the recall list. Purina is pulling its Alpo Prime Cuts in Gravy wet dog food, and Hills Pet Nutrition is recalling its prescription diet MD Feline dry food. It's the first dry food added to the list of potentially contaminated pet food. More details online at CNN.com.
Coming up at the top of the hour, our legal team takes up the case of a woman who was charged after her husband shot her lover. Right now back to IN THE MONEY.
FOREMAN: Hospitality is a big part of the hotel business. Jonathan Tisch, chairman and CEO of Loews Hotel says it should also be a part of every business and explains now in the new book "Chocolates on the Pillow Aren't Enough." Ali Velshi sat down with Tisch and asked him it's so important to connect with the consumer in our "View from the Top."
(BEGIN VIDEO CLIP)
JONATHAN TISCH, CHAIRMAN & CEO, LOEWS HOTELS: In the old days you would walk into a hotel room and you would come back from dinner or a meeting and you would see the chocolate, and you would go they really care about me. That worked 20 years ago, it is not going to work anymore. You need to go beyond what's expected and really find a connection with your customers or they are going to the competitors.
ALI VELSHI, CNN CORRESPONDENT (voice over): Al Maroon Foody (ph), I was in an In-N-Out Burger less than a week ago it's fascinating because I couldn't look around me at this place that has with very few menu items, not much to speak of in terms of decor. Why the fascination, why has In-N-Out worked?
TISCH: In-N-Out works because they have translated a mass market opportunity which is buying a burger and you can do it anywhere, but they understand that people want to be individuals, so the little secret about In-N-Out Burger is go to their Web site and you can learn how to customize your burger and their staff, the kids are very well trained to say, OK, that's how you want it that is how we're going to make it. That's what we need today. We're bombarded with advertising, public relations, marketing, but we want to feel good. We want to turn a transaction into an experience, and you mentioned it twice. You were there over the weekend. It was an experience.
VELSHI: That's right and a simple experience. One of the other companies mentioned in your book Urban Outfitters, a retailer, one can call it a mass retailer. How did they separate it? How do they succeed? Why do you write about them?
TISCH: They break it down also. They take the ordinary act of buying clothing and they mix it up. The stores are constantly changing. We don't want to do mundane. Our lives are highly regulated; we are under extreme time pressure. Now in a household both spouses are working, and you want to be able to take a few minutes and do something that you find pleasure out of, that you can get some enjoyment out of. These are the companies that are getting it. These are the companies that we talk about in the book.
VELSHI: The thread here to your own background, as many businesses that you've been in, you are a hospitality expert, and this is about taking all sorts of business opportunities and making them feel a little bit like a hospitality experience.
TISCH: Well, that's why I think someone in the hotel is uniquely positioned to write a book like this, and I had a great opportunity to do it, because we're on every single day. When you leave the safety and security of your home you're untrusting to us that we are going to take care of you, whether you're there on business or pleasure, whether you're there with your family or with your kids, and you have an expectation that we're going to fulfill hopefully. If we don't do it every time, every visit, every interaction, you're going to one of my competitors, so when you're in the hotel business it's got to work every single day.
VELSHI: There are so many American success stories where the founder started with a vision of customer service and doing the right thing, and then they get too big. How do you keep that culture of doing the right thing and keeping the customer first and keeping it simple, because it does change?
TISCH: Ali, there has to be buy-in at every level of the organization. I had a wonderful experience a couple years ago when the learning channel asked me to go on to a show called "Now Who's Boss." I was retrained by the housekeepers and front desk clerks and I was behind the front desk and I was a bellman and it reminded me that I can sit here in Manhattan and make all the decisions I want about the future of the company but it's my co-workers, in my case 7,500 people, who are the one's giving the service. I'm up here and they are in different positions. In between me and these individuals there has to be an understanding at every level of the organization of what we're trying to accomplish, because they are the ones who are actually doing the jobs. They are the important people. They are in the field.
VELSHI: Interesting story from one of America's great entrepreneurs, the man who started Starbucks sent a memo to his senior staff, we all got a hold of it, but the memo was watch out, you might be getting away from the mission. We might be diluting our brand. Starbucks is a very big, very successful company. No one would think anything is wrong with it but he was saying the things that made Starbucks unique and interesting might be diluted now.
TISCH: Absolutely and Howard Schultz was in the press saying let's not forget the basics, and what can happen is there's so much pressure, especially on the public companies, quarterly earnings, brand extension. How can we get our name out there more, but you've got to remember where you started. Stick to your knitting in many instances. You can expand, but make sure that the expansion always comes back to the regular original mission and original brand. I think that's what Howard Schultz was talking about. Let's not forget that people want to smell the coffee. They want to see you grind the beans and see you put the little foam on the top of the cappuccino.
(END VIDEO CLIP)
VELSHI: Fascinating stuff. Up next on IN THE MONEY we're talking taxes. See why our next guest says Congress likes the alternative minimum tax like a Senator likes a kickback. Stick with us.
FOREMAN: There are two ways to calculate your income tax, there's a third way but it's not legal, and with the less common of the two, you lose a lot of your deductions, but that less common one is becoming more common, an these days it is hammering the middle class. Congress created the alternative minimum tax nearly 40 years ago. It was supposed to make the tax system more equitable by ensuring that every taxpayer owed Uncle Sam a minimum amount and it was aimed at super rich back then cutting off these deductions that could serve as tax shelters, but nobody factored inflation into the mix so fast forward 40 years and the middle class is getting taxed like the rich guys. Len Burman is going to tell us what's up; he is the co-director of the Tax Policy Center in Washington and a senior fellow at the Urban Institute.
Len, thanks for being here. Let me give you a challenge first because I think this is a difficult one. Can you in a basic sentence explain to people out there who still don't understand this and it's very confusing, why this is this way?
LEN BURMAN, CO-DIRECTOR, TAX POLICY CENTER: The short answer is that Congress is counting on the revenue. The AMT is supposed to be bringing in over $1 trillion over the next ten years and when the president says he's going to balance the budget by 2012 he's assuming that money is going to come in, so policy-makers can't reconcile the fact that this is really phantom, that it's really not going to materialize.
LABARRE: Len, when I hear people talk about the alternative minimum tax I think about Dorothy Parker "What fresh hell is this?" And my eyes glaze over and roll back in my head and my instinct is avoidance. I heard this is going to affect potentially 23 million Americans so who is this elusive middle class so who does the AMT really affect? Can you help us unpack who should be worried about it?
BURMAN: The part is going to depend on whether Congress will fix this for another year which they have been doing for the past five or six years, but if they don't change policy, a quarter of taxpayers are going to be subject to the AMT. It's going to include more than three- quarters of families with two or more kids and between $75,000 around $100,000 of adjusted gross income. These aren't the super rich people who are the targeted as you noted in the beginning, these are just ordinary families.
WESTHOVEN: This is something that's so difficult to deal with this. I've been joking it's like bizarro world from "Seinfeld." What you would normally do if the tax system was normal is take a deduction, but now if you take a big kind of deduction, you could end up paying more taxes so don't take the deduction maybe, maybe not. I mean. How do you sort this out? Even if you hire an accountant you don't know they are going through all the scenarios. It's so confusing. What do we do?
BURMAN: Part of the problem is there's really not much you can do to avoid the tax. People ask me how can people get off the AMT? Well, you know, put your children up for adoption or move to a state without an income tax. Most of the things have put people on the AMT have nothing to do with tax shelters. I have kids and I didn't have them to save taxes. Certainly don't pay state taxes because it's a good way to avoid income tax. It really doesn't make any sense, and it's very hard to avoid.
FOREMAN: Do I understand this correctly, Len? I've heard people say that a lot of people who get hit by this are obviously shocked, but give me a sense of the impact. Some people are walking in here and finding out for years and years after taking all the deductions it's kind of OK and suddenly I'm getting a $5,000, $6,000, $10,000 tax bill laid at my door.
BURMAN: On average in 2006, the AMT cost people an extra $6,700.
FOREMAN: You're talking about normal taxpayers out there who last year felt fine, some of this year are suddenly going to hear, guess what, give us $7,000.
BURMAN: Yeah. It's the ultimate adding insult to injury. You go through your income taxes, if you pay attention and notice the little line that says you thought you were done but you've got to fill out this other tax form, Form 6251 where you add back in your kid, your state tax deductions, a few other things and then you recalculate your tax under this different baseline and then you pay whichever one is higher, it's a really goofy way to collect taxes. It would make a lot more sense to get rid of the AMT or re-target at the people who were its original intention and own up to the fact that if we need to raise our revenue we should just do it through the regular tax system.
LABARRE: Len, you're talking now about reform. We can't do anything to avoid it ourselves; maybe the government can help us out. Unfortunately, it's due to bring in about $1 trillion in the next ten years so there's not a lot of incentive for reform. You have some proposals about what the government can do to make up that revenue shortfall.
BURHAM: It is easy if you're not running for office. You can just raise marginal tax rates under the regular income tax or raise them on the top three brackets they are the ones who most likely affected by the AMT. A simple way to fix the AMT would be to get rid of the state and local tax deduction. That causes shudders of horror when you mention that to people, but if you're on the AMT you don't get it anyway, where you don't get the full benefit and the people who don't itemize deductions don't get a benefit from it, so just acknowledge that the estate and local tax deduction is going away anyway and it would make more sense to just wipe it off the books and get rid of the AMT at the time, instead of pretending you are giving people this deduction and then taking it back with the other hand.
FOREMAN: Len Burman, the co-director of The Tax Policy Center in Washington and the senior fellow at the Urban Institute telling us it's pretty much hopeless. Thank you Len.
FOREMAN: Coming up next on IN THE MONEY, the stamp that lets you spend more now so that you'll save more later, at least in theory, and then some other money stories that you may have missed this week but will want to see. Stick around.
FOREMAN: What if someone was willing to sell you an unlimited amount of an item you knew you were going to need at a locked-in price? Well, you'd probably buy it. That's what the U.S. Postal Service is betting on for the new forever stamp. Money.com managing editor Allen Wastler joins us now with a look at why no real business would ever do this.
ALLEN WASTLER, MANAGING EDITOR, MONEY.COM: For one reason, they are going to hike prices again for stamps of another two cents. It's going to be 41 cents to mail a letter to grandma, all right. But this time they are going to introduce the new Liberty Bell thing. I think we've got a picture of it, we can show you what it looks like, it is a Liberty Bell stamp and there's no little number in the corner, OK. It lasts forever. It's the forever stamp.
FOREMAN: Very fetching.
WASTLER: Isn't that pretty?
So you can buy these things and just keep them for 50 years and you should be able to mail a letter to grandma for that.
FOREMAN: Grandma is not going to be here in 50 years.
WASTLER: Medical science is making advances all the time, OK?
WESTHOVEN: More likely no one is going to be writing letters in 50 years.
WASTLER: But you'll have the stamp if you wanted to do it.
FOREMAN: Why is this such a bad idea?
WASTLER: For a business you're not locking in your costs, OK. The costs of delivering a letter which in 50 years might be a whole lot, they haven't locked in the costs, but you still bought it at today's price so they are the ones taking the inflation risk, so now if you look at rates over years from the post office, they have actually kept the costs of bringing a letter down, it looks very, very simple. That's not so much over time, but if you look at the last little bit, the last couple of decades it's coming fast and furious which is where I think this is a great idea because if you look at how many times two cents here and two cents there, and everything, they just nickel and dime you to death. This stamp will at least make it so that I don't have to run down every weekend when I do the bills and get two-cent stamps.
WESTHOVEN: Finding those little stamps next to the ones I have and I don't have two and it's finding the stamps.
LABARRE: So if you're going to buy and horde stamps where do you keep these stamps, you put them in a safe deposit box? In ten years if I bought stamps I know I won't know where they are. You should see my desk.
WASTLER: Oh, I remember this now some of you out there are thinking, oh, what an investment. I'll just buy stamps and it's sure to give me a return. Do the math. I did a little math for you. Stock market returns about 8 percent a year on average, on average. If you do that you end up with about $259 on $1,000 investment. If you took $1,000 on May 14 and went and bought $1,000 of these stamps, in three years, which is the average time for a two-cent increase, you'll make all of $50 so those of you out there figuring out how to make a bunch of mullah, forget it. It's not a good investment.
WESTHOVEN: Even if is not the money; at least it is user friendly which is good. I went to the post office, I saw the big beautiful clock down on the floor and thought oh, they are cleaning it and it turns out they are taking the clocks down because they don't want you to notice how long you're standing on line for 15 minutes and they say that way you'll focus on the service. I think they might be surprised how many people focus on the slow person behind the counter and what anger that they get.
WASTLER: You feel your blood pressure building in and they move like they are on Quaaludes.
LABARRE: I'm going to give a shout out to the post office, the self-service kiosks really work.
FOREMAN: All together now, they have the new "Star Wars" stamps coming up. Pretty exciting.
Age discrimination has cut short many careers as people waited in line for many different businesses, perhaps most visibly in the entertainment industry. It's tough in this week's "Life after Work," Randi Kaye has the story of one former actress who has taken on a new role to combat this issue.
(BEGIN VIDEO CLIP)
RANDI KAYE, CNN CORRESPONDENT (voice over): From Broadway to Hollywood, the entertainment industry celebrates youth especially when it comes to its female performers. Outside of Meryl Streep or Judi Dench there are thousands of other women who suddenly have to struggle to find work once they reach a certain age.
CAROL HARRIS-MANNES, FORMER ACTRESS: Women in the industry, especially after they hit their 40s are not welcomed. They start to get less work, and many women say, well, the same thing that I said. Now what am I going to do with the rest of my life.
KAYE: Carol Harris-Mannes knows their pain because she was once there herself.
HARRIS-MANNES: I did everything I wanted to do, theater, film, TV, a lot of commercials and one day around '95 my fire went out.
KAYE: So Harris-Mannes decided to go back to school at age 57 and earn a masters in social work. That's what she received a callback from her former profession, this time offering a much different role, social worker at the actors fund, a support service for entertainment workers.
HARRIS-MANNES: It was a perfect place for me because I understand the population so well and luckily enough after I graduated a job opened up here and so I've been here ever since.
KAYE: Harris-Mannes runs a support group focusing on career development for older women in the entertainment field.
HARRIS-MANNES: Thanks for catching me and helping me to land safely.
KAYE: Another important part of her work is helping entertainment workers who face serious health issues.
HARRIS-MANNES: I feel a sense of accomplishment, when a woman comes in who was diagnosed with breast cancer, and she has no insurance, and she doesn't know how she's going to get treated and to find her some place to go where she can get treated and successfully recover, that to me is tremendously satisfying.
KAYE: Randi Kaye, CNN, New York.
(END VIDEO CLIP)
FOREMAN: Good work. Keep sitting on your wallet because we'll be right back with more IN THE MONEY.
FOREMAN: Now it's time to take a look at some of the stories you may have missed this week. Do prices seem higher at the grocery store for you? Ethanol is one reason why, high demand for this corn- based alternative fuel is driving feed prices through the roof, and that's all getting passed down to you in the meat and produce aisles.
Circuit City is selling more than 3,000 employees to take a hike because they are getting paid too much. The electronics chain is trying to cut costs and will hire replacement workers at a lower hourly wage. Many experts link Circuit City's recent woes to its razor-thin profit margins for flat-screen TVs.
And the rich are getting richer, and the poor, well, you know the rest. The survey of IRS data for the 2005 tax year by two economists shows that income inequality grew significantly that year. The survey says the top 1 percent of Americans had their largest share of national income since 1928. Allen, is this good or bad?
WASTLER: Well, it's probably going to be a big issue politically, but it's one of those duh kind of stories, because the capital gains tax rate for those years actually went down, so the people who had the money in the first place, they can make more money with it and keep more of it so it's going to go on and be a big factor in the elections I think.
LABARRE: I'm sort of outraged by the Circuit City story. I think it is the ultimate counterproductive move. You're firing employees who are probably your most experienced, best customer service agents and say you be can be hired back at a lower rate going forward so essentially you're disinvesting in your talent and mean while Best Buy, your greatest competitor is investing in talent and investing in customer service and their results show.
WASTLER: Yeah, it's just -- it feels brutal, doesn't it?
LABARRE: Beyond just feeling demeaning to the individual, it's not a great strategy I think for results in the end.
WASTLER: They sort of walked into it there because generally what you do when you are paying by the hour is you say OK you as at this category worker you are going to top out here and after that we just can't pay you more for that. You should concentrate on becoming a supervisor or something like that and that is how other chains do it. But Circuit City somehow just sort of said well lets just amp it up a little bit here and lets get really mean. Why? Because we have crumby service to begin with.
FOREMAN: As you know we will pay you by the hour and our hour is up. So thanks for joining us for this edition of IN THE MONEY. And thank you to Jennifer Westhoven, Polly LaBarre and CNNMONEY.com managing editor Allen Wastler. We will see you back here next week Saturday at 1:00, Sunday at 3:00. See you then.
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