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YOUR MONEY

High Oil Prices and Home Heating; A Fair Tax for All; Showing Up Late at Office Christmas Party is a No-No; Largest Home Price Drop Didn't Help Sell Houses

Aired December 2, 2007 - 15:00   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.


FREDRICKA WHITFIELD, CNN ANCHOR: Three men are charged with murder with the shooting death if NFL star Sean Taylor. A fourth suspect is under arrest in Ft. Myers, Florida. Police say they have confessions. The motive: robbery.
Mental health problems and a history of drug and alcohol abuse. That is how police reports describe a man who took five people hostage at a Clinton Campaign office in New Hampshire. Senator Clinton says she is relieved that no one was hurt.

And two members of the British Parliament met today with a British teacher jailed in Sudan. Gillian Gibbons is accused of insulting Islam after allowing her students to name a teddy bear Mohammad. She is hopeful the Sudanese government will drop the charges and the sentence of 15 days in jail and perhaps allow her release.

Well, Nelson Mandela making a rare appearance at the World Aids Concert Day benefit concert in South Africa. The United Nations estimates that 68 people of people with HIV live in Sub-Saharan Africa.

We'll update the top stories at the bottom of the hour. Now time for YOUR MONEY.

ALI VELSHI, CNN HOST: Welcome to YOUR MONEY, where we look at how the news of the week affects your wallet. I'm Ali Velshi.

CHRISTINE ROMANS, CNN HOST: I'm Christine Romans. Coming up on today's program high oil prices and home heating. Americans bracing for bigger bills. We'll tell you what that means for lower income customers.

VELSHI: How about this one, a fair tax for all. A handful of Republican candidates want to scrap the IRS entirely ...

ROMANS: Scrap the IRS!

VELSHI: Start all over. Why that wouldn't necessarily boost your bottom line.

ROMANS: So much for making an entrance. Why showing up late for your office holiday Christmas party is a major no-no.

VELSHI: I am always an on time, first guest kind of guy. Now listen, October was a brutal month if you're trying to sell your home. Despite the largest home price drop in more than 20 years, you would think that would get houses moving, they still weren't selling.

ROMANS: It is safe to say the housing bubble has burst. Will the ice cold housing market continue to bring down the U.S. economy in 2008? Nicholas Retsinas is director of Joint Center for Housing Studies at Harvard University and Robert Shiller is the professor at economics at Yale University. Thank you both for joining us here today. I guess if housing prices are coming down, down, down but homeowners are still nervous and think there is more to go, it is not really enough yet to entice them into the market, is it, Robert?

ROBERT SHILLER, YALE UNIVERSITY, PROF. OF ECONOMICS: I have been doing surveys about what homeowners think and recently they're still optimistic that prices are going to go up, but historic evidence shows we're in for a phase of years of declining home prices.

VELSHI: Years of declining home prices. Nicholas, you share that? A lot of people have been sort of saying that this is serious, more to come, but maybe by the end of 2008, beginning of 2009, things will start to move the other way. Some time in the next year there is a buying opportunity in property.

NICHOLAS RETSINAS, JOINT CTR. FOR HOUSING STUDIES: There may be a buying opportunity and there may be buying opportunities now. The new variable that has a choke hold on the housing market is the credit crunch. Even those that might be interested in buying, for the most part, aren't able to access credit. So, unless there is some ease in liquidity in the housing market, we could be in for a rough ride for a long period of time.

ROMANS: Nick, we have been hearing that. Especially in area where the median home price is higher, you need a jumbo loan to get them; folks are saying even if they have decent credit, they're having a tough time getting a reasonable rate on a jumbo loan. Is that still the case? Is that keeping people out of the market?

RETSINAS: That is part of it. And for people at the lower end all of a sudden have to come up with something that we lost sight of for a while a down payment. All these things start to change the dynamics. So, while on the one hand if you look at the demographics, you could imagine this turning around modestly in '09, perhaps, unless we ease this credit crunch, we could be in an extended period of a down turn.

VELSHI: Now Robert Shiller, we know the Feds in Washington is talking to major banks to figure out how to help a small portion of the sub prime population hang on to their houses by keeping interest rates low. We know that Ben Bernanke said the Fed is ready and willing or alert and able to take action in the market. What on earth do we do about this? Is there anything to be done about this or just a cycle that we wait out?

SHILLER: The administration is working with major lenders to create a plan to postpone some of these mortgage resets. They'll push people being able to afford to make their payments. That's a good step. We have to see the details which haven't been announced yet. We have a problem, as Nick was just saying, we had, we had an exaggerated amount of credit available for a home buying in the boom years and that's gone now and I don't think it's going to come back in force. We're not going to be making these no down payment no doc loans in the force that we did in the past. That means that home prices don't have that support.

ROMANS: My favorite are those ninja loans, no income, no loans, no assets, sounds like complete nonsense but they were writing these loans and grabbing the fees and then packaging them up and selling them around and that's part of the problem we're seeing right now. Nick, what about the administration plan to freeze rates for some of this sub prime borrowers? We're still waiting for more details, but on the surface, are you happy about this?

RETSINAS: I agree with Bob, it is a very, very interesting plan. I wouldn't kid anyone; it's not the sort of magic wand that will make the housing problem go away. Those problems are more fundamental but it is certainly a step in the right direction. There is no question, if things like this are not done and we see a wave of foreclosures as we're already starting to see, all that will do is add to inventory and all that will do is further depress the market.

VELSHI: Robert Shiller, we take out the housing stuff from the equations for a second. I was out at the malls after Thanksgiving on Black Friday that weekend and I saw a lot of people out there, the retail industry hasn't collapsed and the stock markets haven't collapsed. And if you're not sub prime and you don't need to sell your house, life is actually OK. How bad does this get? Does it spill over to the rest of the economy or is this going to be contained to the housing sector?

SHILLER: That's the big question. So far people have been saying, you know, this housing slowdown has been going for two years now and the economy has continued to boom. So, a lot of people are saying the consumer is very resilient and won't react. But I think we have to be careful about concluding that because our consumers are not infinitely resilient.

When something scares them, it might, you know, make people think twice about not saving, which is what the savings rate has been zero, essentially zero in this country. So, you know, it depends on how it unfolds and how awesome the sub prime crises start to look. But I think we're starting to see a decline in consumer confidence and we might have a weak Christmas season this year.

VELSHI: We'll stay on that story. Robert Shiller from Yale University and Nick Retsinas from Harvard, thanks to both of you.

ROMANS: All right. UP next here what one woman is cutting back on to heat her home and what that could mean for your bills this winter.

(COMMERCIAL BREAK) ROMANS: And now, let's look at some of the week's top headlines. A new government report provided the latest sign of a slowing U.S. economy as we head toward 2008. October saw the weakest gains in spending and income in the last six months. October inflation on target which could mean more Federal Reserve rate cuts are on the way.

VELSHI: Could mean?

ROMANS: Some people say it does mean.

VELSHI: We're betting that it is going to be. We'll keep you posted.

Some positive news out, as well. The U.S. economy grew at the fastest rate in four years in the summer and early fall. The GDP which is how you measure that for the third quarter climbed at a rate of 4.9 percent. That was led by strong exports and inventory building. I don't know how you build inventory. The housing saw a drop and consumer confidence is expected to drag down the GDP though for the fourth quarter so doesn't get you hopes up to much.

ROMANS: The rising cost of health care, housing, education is putting a squeeze on America households that is according to a new study by Demos (ph) an advocacy group for lower and middle-class Americans. They say almost 70 percent of U.S. middle-class households are at risk of losing their standard of living. More than 50 percent live paycheck to paycheck and have no financial assets. When you take away all their debt, excluding home equity.

VELSHI: What do you think middle class means?

ROMANS: Well they it is like $40,000 to $129,000 a year income, that's a big swath of America.

VELSHI: And a big swath of America is being squeezed at the gas pump now. We've seen that for a while and with winter on its way, it may get squeezed further by its heating bills. Allan Chernoff has been on that story and he joins now. Allan welcome.

ALLAN CHERNOFF, CNN CORRESPONDENT: Thank you, Ali. It is hard enough to pay $60 to fill up your gasoline tank, but then if you're talking about your home heating oil tank, well, that is some very serious money that many people simply don't have on hand. We met one retiree who lives in East Orange, New Jersey.

(BEGIN VIDEO CLIP)

CHERNOFF (voice over): Down the back stairs and in the basement where 72-year-old retired postal worker Carol Smith now finds her home's money pit, a heating oil tank. At today's price it will cost $900 to fill.

What was your first reaction when you heard how much the price has gone up this year?

CAROL SMITH, HOMEOWNER: My first reaction was shock. I said, I can't believe that this is going on. And so then I said, well, then I have to figure out how to make the payments.

CHERNOFF: Carol is lowering her thermostat, driving less, economizing on holiday presents for her grandchildren and at the market she's cutting back on what she calls luxuries like ice cream and cake.

SMITH: It is scary. It is scary. Sometimes I worry at night, I say, oh, my goodness, I have to keep making plans and coming up with ideas on what to do.

CHERNOFF: This could be a very expensive winter for homeowners in northern states. Carol's supplier, National Fuel Oil, has raised the price of heating oil to a record $3.25 a gallon. An increase of 50 percent from last winter. Even at that price, the company says, its profit margin is squeezed because the cost of oil has soared this year. Hard to explain to angry customers.

BOB AYARS, PRESIDENT, NATIONAL FUEL OIL: They don't understand and I don't blame them. I feel for them.

CHERNOFF: How hard is it for you to tell the customers what the price is this year?

AYARS: Well, it makes you; it makes you not want to answer the phone sometimes.

CHERNOFF: Some of National's low-income customers will get a free delivery of heating oil, donated by Venezuela's Citgo, which provides an opportunity for Venezuela's Hugo Chavez to gain political mileage at the expense of the United States. But the non-profit behind the program says it's still worth while.

JOSEPH KENNEDY, PRESIDENT, CITIZENS ENERGY: I don't know how an awful lot of low-income people are going to get through this winter.

CHERNOFF: Last year Carol Smith received a free delivery and, again, this winter she's counting on the same and enough free oil for two weeks so she can afford to keep her home heated throughout the winter. They asked U.S. Oil companies to participate but not one of those companies has chosen to do so.

(END VIDEO CLIP)

ROMANS: Why haven't they? You think a nice little public relations move for these companies to say ...

VELSHI: Venezuela seems to think so.

ROMANS: Yeah. Why not have some kind of program maybe some of them already have low-income programs.

CHERNOFF: The U.S. government does. The U.S. government has a low-income home energy assistance program and, you know what, the U.S. oil company said to us, well, we support that program. Well, guess what, they're not paying for it, right? It's coming out of our pockets. VELSHI: We can all support that. What about Joseph Kennedy, used to be a Congressman, any qualms with ...

CHERNOFF: Well, he acknowledged that Chavez is getting some points out of this. What are we going to do? Turn the oil down. We're all using Venezuelan oil. We're using it to drive our cars, so, hey, if they want to contribute to people who need a hand, he says, I'll take it.

ROMANS: You know it's interesting, a Native American Indian tribe last year who were flown in to be at a Hugo Chavez event and after soul searching, they decided not to take the free oil from Citgo because they deemed it unpatriotic.

VELSHI: Last year, oil was a lot cheaper than it is this year.

ROMANS: That is true and then they had to pay for it. I don't know, a tough choice.

VELSHI: Allan, good to see you. Thank you so much. Allan Chernoff.

Well still to come, the proposed fair tax. Some Republican candidates say it's going to make your life a lot easier. We'll find out if it makes any sense to your bottom line.

And what one top auto chief says is bringing down the auto industry and what he's doing to turn it around. Stay with us, you're watching YOUR MONEY.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

MIKE HUCKABEE, (R) PRESIDENTIAL CANDIDATE: The first thing that I would get rid of is the Internal Revenue Service. We have a complete getting rid of a $10 billion a year industry.

(END VIDEO CLIP)

ROMANS: Wild applause for axing the IRS.

VELSHI: And the talk of a fair tax. That's what Mike Huckabee was saying at the CNN/YouTube debate. He's endorsing this idea of a fair tax, it's easy, it is simple to use and a number of the Republican candidates said they liked that idea, too.

ROMANS: Our next guest says it means no spin language a national retails sales tax. He is here to break it down for us. Pat Regnier, senior editor at "Money" magazine. The Republicans in the crowd certainly like the idea of getting rid of the IRS and making more simple tax system. What is the fair tax first?

PAT REGNIER, SENIOR EDITOR, "MONEY" MAGAZINE: Let's unspin it and say what it is. It is a National retail sales tax. The way it works, it is a 30 percent mark up on basically everything you buy. Now, in exchange for that, it takes away all the other taxes you pay. You're not paying income tax, you're not paying a federal income tax, the payroll tax that go to Social Security and Medicare goes away. So, the idea is you move taxation away from income and towards what you spend.

VELSHI: So, these are some of the taxes that go away if you go to this fair tax. So that means whether I make $2 million a year or $200,000 a year or $20,000 a year, I pay an extra amount on a gallon of milk, a gallon of gas, my rent, my health care, everything.

REGNIER: That's right. Certainly at the marginal rate. So, the other thing that they do to make this tax less punishing on the poor because, frankly, sales taxes if they're a flat sales tax are terrible for people who basically spend every dollar that they make, which is actually most of us. They pay a disproportionate amount of the tax. So, this is adjusted by basically the government having sent everybody a check and that changes the tax rate.

VELSHI: Everybody gets the same check. Every single household will get the same amount of money.

REGNIER: Based on the size of your household.

VELSHI: Think it is going to happen?

REGNIER: I think it is very unlikely. This is a very big change. The people that support it, it wipes away the IRS and it gets at least at first we would get rid of all the interests ...

VELSHI: All the deductions disappear.

REGNIER: Sometimes lobbyists but sometimes Congressmen fighting for their constituents and legitimate political interest groups. The tax code is a very complicated thing and a lot of people who value a lot of the things in the tax code. They'd be fighting that. On top of that, you're talking about something that would change the real price of everything. That has a huge complicated effects on, you know, the value of the dollar, sort of where our economy fits in international markets.

VELSHI: Back to Canada or to Mexico to buy stuff where they don't have that kind of a tax. I mean, it's more cumbersome than it appears when you first say one fair tax for everybody. There's more to it.

ROMANS: We said before so many times let's scrap the tax code and let's reform the tax code, let's look at this monster, whatever it is, that is, as you said, lobbyists in there, congressmen rooting for what they want and let's make it simpler. But we never really seem to do it.

REGNIER: It's very hard. The last time you had a really big tax code change was in the 1980s. People in Washington talk about that, one of the greatest bipartisan moments in Washington in anybody's memory and the tax code got simpler and fairer and ...

VELSHI: Still two telephone books big.

REGNIER: It's eroded since then. Everybody talks about how could we bring it back? I think the dream of the fair taxers and the people who like this are very passionate about it. We can do it in one fell swoop.

VELSHI: And remember even if they get rid the IRS the government is still going to have somebody enforcing cheaters, it's called something else.

REGNIER: That is right, any government where taxes are getting paid there is a man with a calculator.

VELSHI: That's exactly right.

Pat Regnier, good to see you.

REGNIER: Thank you.

VELSHI: Ford by the way has agreed to settle a class action lawsuit this week involving more than a million plaintiffs in California, Connecticut, Illinois and Texas.

ROMANS: The plaintiffs claim their vehicles lost value after the August, 2000 recall of the vehicles Bridgestone/Firestone tires which made the SUVs rollover prone. In the settlement Ford will give customers $500 towards a new model or $300 towards another Ford vehicle.

VELSHI: Drivers who bought or leased Explorers between 1990 and 2000 in those four states will qualify.

ROMANS: Carlos Ghosn the Brazilian-born son of Lebanese immigrants who became the CEO of Frances Reno and then Japan's Nissan, today he's the CEO of both companies and his successes had some people saying he should come across to run one of America's carmakers.

VELSHI: They were talking about that with Ford and in 2006 he pursued the idea of an alliance between Nissan and GM. But last year the slowdown in car demand hit Nissan. I sat down with Carlos and asked him how he and Nissan are dealing with this speed bump.

(BEGIN VIDEOTAPE)

CARLOS GHOSN, CEO, RENAULT-NISSAN: Bumps are going to happen always. I'm going to run a company for 20 years and there will be no bump in it. Very difficult to do that. Now, every single time you deviate from your objective you want it put it on the table and says I have performance crises, immediately. Don't try to play around. Just say you have a performance crises and I'm alleviating from the objective. How fast I'm going to come back to the course.

VELSHI: Tell me what you see from your perspective about the auto industry in the last year? What are the new emerging challenges? What's happened in the industry worldwide? GHOSN: We can divide the world into parts. We have the world that is declining which is many of the mature markets. The U.S. market is going down, Japanese market is going down. Western Europe market is going down in term of cars. Tremendous growth, Russia, China, India, the Middle East, South America. I'm talking about 20 percent plus kind of growth. And we as car manufacturers we have to deal with both realities.

VELSHI: Tell me where you see the future of fuel efficiencies in cars moving?

GHOSN: I'm personally convinced on the fact that we're all moving towards more fuel efficiency and make different choices. I'm convinced that in city driving the future is for zero, I am not talking about 20 percent, zero emission. This means that the solutions are going to be all electric or fuel cell.

VELSHI: We have had a few very rough years for domestic automakers in the United States. To the point that a few years ago your name was brought up in every conversation about the car industry, whether it was an alliance with General Motors, whether it was to come here and head up one of the auto companies and, again, this discussion has surfaced again about you and American automakers. Tell me what the story is right now.

GHOSN: Well, the story here is pretty clear. We said that in terms of strategic vision, today the lines between Nissan are the only alliance working well in the industry. Both companies said, well, you know, it makes sense that we join forces together and we establish something where the fuel company is respected.

So, mutual consent, mutual appetite for this kind of relation is extremely important for a good execution. For the moment, there is nothing like this. That's why it's a good, strategic move but the conditions are not right.

(END VIDEOTAPE)

VELSHI: Coming up next, making an exit. Why you might want to get out of this roller coaster stock market.

ROMANS: And later a different kind of timing. Find out how long is long enough to stay at the company holiday party.

VELSHI: I'm going to pay close attention to that one.

(COMMERCIAL BREAK)

WHITFIELD: Hello, I'm Fredricka Whitfield in Atlanta along with Reynolds Wolf. For an update on this wintry weather.

REYNOLDS WOLF, CNN METEOROLOGIST: Oh my goodness. We still have that winter storm warning in effect through parts of the Midwest, the western half of the Great Lakes and it's just roaring in many spots, including in Iowa and back up into the twin cities. Right now in Cedar Rapids into Des Moines we got a combination of ice and snow as it comes from the southwest and rolls to the northeast, a very, very icy day for you.

Meanwhile, back into Minneapolis, waves of snow coming through and could see up to a foot of snowfall before the day is out. In Chicago, it is getting increasingly worse. We've got delays at the airport, right at this point up to an hour and a half at O'Hare.

That is a look at your forecast. Jacqui Jeras will be here through the rest of the afternoon and the evening. Let's send it back to you at the news desk.

WHITFIELD: All right. Thanks so much Reynolds.

Well, coming up at the top of the hour I talked to NBA great magic Johnson and his wife, Cookie about living with Aids. I also catch up with Ludicrous who is helping to spread the message of Aids awareness and he's doing so from a South African stage. All that and more coming up at the top of the hour.

Now, back to YOUR MONEY.

ROMANS: Ali follows the stock market every day and he could be forgiven for wearing a neck brace from the whip lash this week. One day, two days down, two days back up. And all big moves.

VELSHI: Now, the thing is that for those of you who aren't buying and selling on a daily basis, you probably are wondering what's going on. Check your portfolio but check your tolerance for risk. That's according to our good friend certified financial planner Doug Flynn of Flynn Zito Capital Management, says short-term investors get out now. If you're not in for the long ride, you might want to get off the train.

ROMANS: You're here to tell us how to get off the train like a pro and not like the buy, sell, high, low crowd that some of us fall in to.

DOUG FLYNN, FINANCIAL PLANNER, FLYNN ZITO CAPITAL MANAGEMENT: That is true and that is the key. If you need your money soon.

VELSHI: Like if you want to buy a house in the next few months.

FLYNN: If you've been investing in the last five years the market has treated you very well and so human nature is that at the high point you don't want to get out because you think you'll keep making money and then this dip over 1,000 points and you think should I get out now? I don't want to. You have a recovery here to say, if I need my money in the next couple years, what is the best way to get out? You need to get out because you need this money. It isn't money you're putting away for 20 years. This is your short term money. One of the ways to do that is not to pick any one particular day to get out.

ROMANS: Don't just pull it out.

FLYNN: No, you can. I mean, if you are willing to get out, you pull out half. Picking today is just totally random. VELSHI: Same way you would recommend someone get into the market. Not all in one day either. You divide up it over how long?

FLYNN: You need your money in a year and a half or so, you need you have to get it into a money market or savings. Reverse dollar cost averaging is one of the terms or dollar sale averaging is another way to say it. Take the money you need. If you had $24,000 that you need to get out in the next year and a half, you could just simply divide that up monthly over the next 12 months, any mutual fund company or your adviser can divide that, set it up and so that 1/2 of that happens every month and low and behold a year from you have gotten that money into cash and your haven't picked today or last week or next month ...

ROMANS: You smooth out the ups and downs of the market and you actually get more of an even number rather than picking the wrong day today.

VELSHI: You're never going to know whether it's the bottom of the housing, market or the top of the stock market. Where do you park that money? Because you're not getting money on interest these days.

FLYNN: You have to be careful with bonds because although they might lower rates next time, we're very concerned about what they might have to do to rates later on. At some point rates will have to go up, which is probably going to up which is probably going to tie into when the dollar will finally recover.

VELSHI: This could be a year and a half down the road, two years.

FLYNN: It could be so if you don't know that, the only place to go is your savings or your money markets. You have to do that. If you need money in a year, you should not be in the stock market. I would hesitate to be in the bond marker with the stuff that's going on right now. That's kind of the place you have to be is short-term savings and cash and money markets.

ROMANS: If you want it buy a house in the next couple years and you are waiting out some of these falling home prices, what are some of the other things? You have to keep going to college, need to pay college bills. Maybe even health care bills. I'm not sure what are the reasons that would cause you to get out of the market and get liquid.

FLYNN: What is funny about college is people treat college very aggressively. They treat their retirement more conservatively and don't realize that their kids are going to school in five years and retirement -- you have to mind the time frame of when you need the money. You need the money for the kids in five years you need to set it up appropriately at that time.

VELSHI: The market has been going like this. For the average investor, that's worrisome they see the 300-point gain and 2-00 point loss. What does it really mean, should the average investor be all that concerned right now? FLYNN: No, if you're getting in and you are putting money away for retirement, personally, money we won't need for a long time? When do you want to buy when it's 14-2 or 13-2? So, getting in, you want to use this volatility to your advantage. But getting out is the same thing. Why try to pick the day to get in or out? You can do that by simplifying by setting up on an automated basis.

ROMANS: What if you're looking at your 401(k). This is not something you're going to turn liquid, necessarily. It's not money you need right now. Should you be looking at these kinds of principals when you're talking about your retirement that is in your tax exempt account?

FLYNN: More people did get aggressive by nature of the market moving very well over the last couple of years and they may have started with an 80-20 portfolio and now they are almost all in equities. Because the market did sell well, so you do have to, you know these are the times to rebalance. As a nation we don't save enough, period. We don't invest enough of what we save and we don't diversify enough of what we invest. If you do those things save, then invest, diversify.

ROMANS: Where to park my money over the next couple of years. Definitely good problems to have. Doug Flynn, thank you so much, of Flynn Zito Capital Management. Always great when you come by.

VELSHI: Another reason you might need to get that cash, you might need to get a gift for a co-worker. When you buy a coworker a gift that comes in small, medium or large, you may be doing them and yourself more harm than good. Office gift giving dos and don'ts that I am certainly going to stay tuned for. Stay with us.

(COMMERCIAL BREAK)

VELSHI: For most people the phrase "end of the year" means holiday shopping and non-stop spending ...

ROMANS: And eating!

VELSHI: Also a time for saving money, however.

ROMANS: A lot of it. The moves you make right now could make a difference between owing the IRS money or getting a nice refund next year.

VELSHI: Donna Levalley-Cocovinis is a tax attorney and contributing editor of J.K. Lasser, your income 2008, the size of a phone book, but it is a good, important read. Donna, welcome to the show.

ROMANS: Save us some money.

DONNA LEVALLEY-COCOVINIS, TAX ATTORNEY: Thank you for having me. The cost of the book is tax deductible. Great place to start.

VELSHI: What do you do before the end of the year? I don't want to start talking or thinking about taxes. But you say do something now.

LEVALLEY-COCOVINIS: Charitable contributions. I suggest you use a credit card. One of the was to get a record, make sure it's completed because one of the new things for 2007, you need substantiation of all your cash donations.

ROMANS: Every cash donation, if you claim it, you have to have a piece of paper that says you did it.

LEVALLEY-COCOVINIS: Have it ready for the IRS. This way if you have a credit card you know where you made the donations. If you need an acknowledgment you can call them up and they will send you one and you will be already.

ROMANS: A lot of people accept those credit cards now; even small charities accept credit cards because of this reason.

LEVALLEY-COCOVINIS: The gift is complete. They don't have to wait for the donation to come.

VELSHI: You should give what you want to give, but how do you know how to optimize how much to give?

LEVALLEY-COCOVINIS: It's about getting some deductions together for the end of the year. This is one of the last deductions that you can get. If you're looking at how much you have in terms of deductions now and get over the standard deduction and itemize, maybe that's a way to be more generous.

ROMANS: What about business journals and things related to your profession, is there a way to shift that maybe a little bit?

LEVALLEY-COCOVINIS: Income and deductions. If your income is higher this year, defer some income to next year and accelerate deductions it this year. You're in that higher bracket. So, if you're a regular person in the mortgage interest and if you're a small business person, professional subscriptions, professional associations and things like that or if the income is lower next year higher next year.

ROMANS: I write the check.

VELSHI: My income will be higher next year, let's do it all now.

Let's talk about heating, if you're doing things to your home to make it more efficient or greener, you can get a deduction for that?

LEVALLEY-COCOVINIS: The tax savings for energy improvements. If you didn't use all of it in 2006. Doing something like insulation will help out, you can do it yourself and don't have to hire an expert and pay somebody to do it. If you need to replace a window or replace door or things like that, you can get deferred by the credit. Go it energy.gov and you can learn about which water heaters and that type of machineries will qualify for the credit.

ROMANS: You should look at investments, too. Tax notifications for what you sell and what you keep a hold of. What is the wash, sale ...

LEVALLEY-COCOVINIS: With if you sell a stock at a loss you can't repurchase it for 30 days before or after. You can buy it through an IRA. So, that's one way to get it back but you will have to hold that for a while. One good thing about losses, if you don't have enough gain to off different set all the loss, you can shelter $3,000 up to ordinary income. Any losses you can't use this year, keep a good record and you can deduct them in the future.

ROMANS: She's so excited about taxes.

VELSHI: I was sitting around this week struggling to understand the fair tax and I saw it on this YouTube debate on CNN and saw Mike Huckabee and I said, why did you do that, man? He absolutely did, I had to all about this. Donna, it's like candy to her.

LEVALLEY-COCOVINIS: I like to hear the debates; I like to hear something that will give us all an easier time at tax time. That would be great. Everything being more transparent and, you know, going for it hopefully all the rules will be simpler to follow.

ROMANS: Donna Levalley-Cocovinis thank you and the book is tax deductible.

Up next Jennifer Westhoven here with a story here you have to see before you pay your next phone bill.

(COMMERCIAL BREAK)

VELSHI: Jennifer Westhoven joins us with a great story because until now I have been take whatever cell phone company I wanted to use and whatever phone and take it out to a guy in Queens and give him 30 bucks and he will make it work. I don't care if anybody knows this, that's how it's been done. Most of America has not had that privilege. I'm proud to say it's available in America.

JENNIFER WESTHOVEN, CNN CORRESPONDENT: For the rest of us, for the rest of us who are playing by the rules, if you wanted to switch your cell phone service, maybe you got lousy service from a person or maybe your phone gets bad service the break-up fee and then you generally have to buy a new phone. It costs a lot, its hassle, but now Verizon is unlocking its service.

VELSHI: Can you hear me now? Can you hear me now?

WESTHOVEN: This is a huge u-turn, by the way. A big shift under way in the cell phone industry. But just to give you a sense of how big this is, "Business Week" said this is like Fidel Castro embracing capitalism. Verizon put up barriers to this before. The rest of the world, here in U.S., here's my trio, it only works with Verizon and I have this blackberry and it only works with AT&T. It looks like it will start happening here especially with Verizon making this move.

VELSHI: In fairness, you still have to have the same technology. So, Verizon phone will work with Sprint phones but AT&T, Cingular are on GSM. That the same month that we figure out we can use the same plugs all over the world and the cell phones can have all the same chargers.

WESTHOVERN: Your iphone still will not work on Verizon. Let's talk about Sears.

VELSHI: You been in one lately?

ROMANS: I have not been in a Sears in 11 years.

VELSHI: You're not missing much. They didn't paint it since then either.

WESTHOVEN: This astonishes the kind of comments that they're getting and even from suppliers. One supplier said in a report they're doing everything they can to drive customers out of this store.

VELSHI: Sears' profit was down, you know, 99 percent drop in profits this quarter. Now, somebody, this guy, this hedge fund guy bought it and he turned Kmart around and it was supposed to turn it around. What happened?

WESTHOVEN: Well, apparently, just not working. I don't know what they're concentrating on, it's not the customer. Sounds like from the reports they're looking at numbers. Either way, if you walk in a store, you're likely to see old stuff and don't want to put things on sale, still trying to move and fall merchandise that is still on the shelves and, of course, what they're really known for the tool department and appliances, we have a housing market downturn.

ROMANS: Didn't they buy Landsend?

VELSHI: They bought Landsend.

ROMANS: Aren't they bidding for restoration hardware?

VELSHI: They bought a piece of restoration hardware. They're trying to do different things but they have been hit by the housing downturn with their appliances and you been in a Target recently? That's a down right pleasure it shop in that place.

WESTHOVEN: And the idea was you were buying into this almost like a Berkshire Hathaway so you could get was like Berkshire Hathaway with Warren Buffett. That stock has come down a long way. Who wants to be in there?

ROMANS: It sounds to me like Sears' shareholders need a drink.

That's a clumsy segue.

VELSHI: Jennifer has a solution for you.

Never mind the bottle, where's the party.

ROMANS: That's only two apiece.

WESTHOVEN: Beer prices are going up, as if we're not already hit by higher gas prices and the housing downturn ... ROMANS: Health care cost.

WESTHOVEN: Now our only comfort for many of us. The price is going up. The guys at Anheuser-Busch says they have to cover the rising costs of hops and barley.

VELSHI: Why? Because where hops and barley grow they have people to grow corn, instead, because we grow corn for our gas tanks.

ROMANS: Like a lot of other so-called sin products, people will buy even though there are higher prices. Is that an economically sound reasoning?

WESTHOVEN: That is actually the trend. They will keep raising prices because they think people will keep on paying.

ROMANS: All right. Jennifer Westhoven with Sears, beer and Verizon. Thanks, Jen.

VELSHI: Well each week we profile a person who left a successful career behind to dedicate their life to something they're passionate about in our "Life after Work" series. But this week we met a man who found his calling only after hitting rock bottom.

(BEGIN VIDEOTAPE)

VELSHI (voice over): its audition time for director Haywood Fennell. Looking for another cast to perform the plays he's written. But Fennell isn't a classically trained play write. In fact his first play was written at a homeless shelter.

HAYWOOD FENNELL, DIRECTOR: I was living in a shelter and I wrote a play called "Harlem Renaissance" a play of people who were actually denied their opportunities to perform and to perform in different places and be heard and read as writers. It was a little bit like me.

VELSHI: The first act in Fennell's life was in the army overseas when he became addicted to heroin. Upon returning home Fennell spent the next 20 years of his life in and out of jail and shelters because of his addiction.

FENNELL: Police officers arrested me saying, you're too smart for this and later on they said you're kind of old for this.

VELSHI: Fennell got clean 15 years ago and now in the second act of his life he's a renaissance man writing children's books, hosting a weekly public access show in Boston and staging his plays.

FENNELL: It's been an ongoing, wonderful journey. Very moving to be able to write something and then have someone perform it to the level that they perform.

(END VIDEOTAPE)

VELSHI: All right, great story.

ROMANS: All right. Coming up, perfume, cologne, body lotion, why you have to cross all those off a certain holiday shopping list.

VELSHI: Do not ignore this, it could save your job. Stay with us on YOUR MONEY.

(COMMERCIAL BREAK)

ROMANS: This is without a doubt my favorite time of the year, but, you know, the social mine field at work from the holidays, gifts, you know, clients, co-workers, the holiday parties, drinks after work, there's a lot of stuff that can get you in trouble.

VELSHI: We have lately started getting guidance on these things.

ROMANS: On the mistakes we make every day.

VELSHI: She's here to tell us how to handle the holidays at work. Ines thank you.

INES FERRE, CNN CORRESPONDENT: Thank you so much. Starting with giving gifts to your colleagues or employees. First thing you want to do is check to see if your company has rules or a max on how much you can spend on gifts. I spoke to Jane Cranston, a career coach, who gave me the following advice.

(BEGIN VIDEOTAPE)

JANE CRANSTON, EXECUTIVE COACH: Give gifts privately. Particularly, if you're not giving to everyone in the office. Take someone out for coffee or bring them into your office and exchange gifts then. Don't expect a gift from someone.

FERRE: What about giving down the kind of rule of thumb.

CRANSTON: The etiquette is that bosses should give gifts to their employees but employees don't necessarily have to give to their bosses. The nicest thing to do is give a gift to a boss in a group.

FERRE: What are some appropriate gifts?

CRANSTON: I'll tell you what is not appropriate. We talk about no skin and no size. No skin meaning gifts that touch the skin. Underwear, blouses, shirts, jewelry, perfume are generally not appropriate. And we'd never want to give something that, in fact, the size would be insulting to the person because you chose particularly too large a size.

FERRE: And, also, this time of year, people tend to go to holiday parties. Tell us a little bit about that.

CRANSTON: I think people should go with the attitude that they can be fun. They can be fun if you decide they're going to be fun and you should be fun at the parties but fun also doesn't mean that you drink too much. You should be gracious and you should thank your host at the party. I think you should plan on spending 30 minutes to an hour just showing up at the last minute doesn't always work.

(END VIDEOTAPE)

FERRE: One of the best places to network at holiday parties might be near the food table.

VELSHI: Totally the best place.

ROMANS: Just want to make sure that you're not stuff would shrimp or you have spinach with between your teeth.

ROMANS: No skin.

VELSHI: No size.

ROMANS: And I mean can you imagine ...

VELSHI: So the extra large lingerie is out.

FERRE: She said to me some people give underwear like boxers and that type of thing.

ROMANS: A lot of people give body lotions and stuff like that.

VELSHI: Dollar signs on it or something like that. That's not really that funny.

ROMANS: I could give you a nice bottle of fragrant lotion probably because we're friends and colleagues but it would not be right for Ali to give somebody some scented lotions ...

FERRE: But, you guys, in the spirit of the holidays I have something for you and, you know, I thought to myself, something that doesn't cost much but could be worth something. It's a closest that I could find to YOUR MONEY, it's merry money.

VELSHI: Scratch tickets, love it. Thank you so much.

This could change everything.

FERRE: Yeah.

VELSHI: If it works out well, you can get something in return for that.

ROMANS: If we win the million plus, you'll have new co-hosts next week. No, I will still come to work.

VELSHI: You'll have one new co-host next week. Thank you so much and thanks for all the good advice. That is worth taking.

Thank you for joining us for this edition of YOUR MONEY, which might be my last. You can catch Christine later today on "LOU DOBBS THIS WEEK."

ROMANS: And you can see Ali every weekday morning on "AMERICAN MORNING." We'll see you back here next week.

VELSHI: Saturday at 1:00 and Sunday at 3:00. See you then.

(COMMERCIAL BREAK)

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