It turns out that making a contribution to your individual retirement account (IRA) is pretty hard. Only about 1 in 14 tax filers in North Carolina takes advantage of the opportunity to protect your income from taxes.

This number comes from data that I found through the IRS.  Only 7.4 percent of filers made an IRA contribution in 2007. That number includes people who made any kind of contribution to either a ROTH, a SEP, or a traditional IRA.  During 2006 and 2007, contributors were allowed to put $4,000 in a Roth if they were under 50, and $5,000 if they were older.

The IRA is one of the two main ways that middle-class households are able to protect their earnings from taxes. The other most common way is through the home mortgage deduction. For the well-off, there are all kinds of vehicles to protect earnings. For people that don’t make that much, there are very few incentives designed to stimulate savings. Individual Development Accounts (IDAs) sometimes provide matching funds to savers, but those are not able to reach a wide portion of the population.

Savings is an important problem facing our country. Until recently, we had a negative savings rate. In fact, during 2006 (for which those 2007 returns were filed), our national savings rate was -0.5 percent! We’re probably doing better now. It is hard to spend when your credit limit has been slashed.  A cash economy is a constricted economy, even if the money supply is exploding. By comparison, Business Week has a few estimates on savings rates elsewhere:

• Europe (average) 20 percent
• Japan 25 percent
• China 50 percent (estimate credited to International Monetary Fund)

In the short-run, our spending can act as its own stimulus. Unfortunately, the long-term repercussions are significant. The lack of available capital in our banking system servers to make sure that we will not reinvest in our businesses. For individuals, it means that many households will have a hard time retiring.  The Employee Benefits Research Institute estimates that 63 percent of households that include a person of more than 55 years old have some kind of debt. The average debt among seniors is over $70,000.

The IRA number (share of filers making a contribution) is probably even lower now, as people are now tightening their belts and trying to get through this recession.

CRA-NC has prepared a video documenting the efforts of North Carolina housing counselors seeking to prompt changes in the Home Affordable Modification Program (HAMP).

Our motivation was simple:  we wanted to get the word out to the leaders in DC that loan modifications have been slow.  We wanted to let people hear the voices of housing counselors.

Housing counselors are the foot soldiers in the battle against foreclosures.  Housing counselors meet with families that are in trouble.  Housing counseling is mainly funded by the Department of Housing and Urban Development.  Unfortunately, funding pays for operational costs but not for the sunk costs of office space and utility bills. Counseling agencies are constantly strapped.  They cannot charge their clients, and they must outfit their operations to meet HUD standards. Most housing counselors are paid very little, even thought they can make a big difference in keeping a family in their home.

The work is tireless.  The work is ground zero for the foreclosure crisis. Housing counselors negotiate with servicers. Housing counselors know what is working, and what is not working.

If you click on the movie below, you’ll be able to see a short documentary highlighting the Modify This Tour.

[vimeo

Modify This! from Tyra Dixon on Vimeo.

]

Housing counselors from non-profits across North Carolina rolled out to the Capitol to talk about loan modifications.  More than 50 counselors were there, along with staff from CRA-NC and NCHFA.  We were joined by ChangeMakers, a community organizing group from Brooklyn, New York.  The counselor led the show. They asked the questions and made their opinions known to our invited guest:

• Congressmen Bob Etheridge (D-NC) and David Price (D-NC).
• The Department of the Treasury
• Department of Housing and Urban Development
• Office of the Comptroller of the Currency

We look forward to continuing this fight. Change is not instant, but incremental. More foreclosures are expected. HAMP is not working.  Our national leadership now acknowledging that the servicers are dragging their feet. They are “not doing a good job,” according to Assistant Secretary for Financial Institutions Michael Barr.

Bank Pay in 2009

Bank pay has never seemed more out of synch with common sense.

This week, banks have been reporting their compensation for 2009. In many instances, banks are consuming all of their available income (and then some) on compensation. Many banks are spending almost all of their revenue on salaries. It is an incredible statement of disregard for shareholders. For banks that still have TARP funds left to pay back, its even worse. The banks somehow are swallowing their shame. They must have a large appetite.

The table at the top of this entry is a review of the pay for performance paradigm in place at some leading banks. The situation at Morgan Stanley seems to be the most provocative. While banking operations, company-wide did earn a profit in 2009, the executive compensation policy meant that shareholders were shut out of the action.

Eric Dash has a nice review of the situation in the New York Times:

“Even now, after all those big bonus numbers, the pay-to-profit ratio for the financial industry might come as a surprise to many people. The five largest banks on Wall Street — Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase and Morgan Stanley — earned a combined $147.4 billion before paying compensation and taxes last year. They plowed back a combined $31.2 billion into their companies and returned a total of $2.1 billion to shareholders in the form of dividends. They paid $114.1 billion to their employees.”

The madness is all the more maddening because banks spend plenty of time trying to articulate an underlying principle for their compensation schemes.  The gist, repeated through annual reports and 10-k’s as a mantra for the powerful, goes like this: we pay a lot to reward performance.

This year, performance is looking pretty weak. Pay is doing pretty well.

It is a bad day at Instant Tax.  A news report out says that there was an “angry mob” outside of Instant Tax offices at 39th and Main in Kansas City.

Instant Tax (call them here) had promised refund loans to its clients. Those clients that came by the office this morning to get their proceeds were informed that they would have to wait instead.  People got pretty steamed, given that they had paid high fees and interest for those refund loans.

In all likelihood, the problems that took place this morning in Kansas City are being repeated through the Instant franchise. Maybe it is just that people in Kansas City are particularly impatient about being stiffed.

Instant Tax’s problem is the same one that had plagued Jackson Hewitt, and that may plague Mo’ Money in the near future.  Their bank partner dropped their line of credit.

Business Model

Instant Tax seems to have the same playbook as Jackson Hewitt, Mo’ Money, and the rest of the retail tax prep chains.  Locate in a neighborhood that fits your customer demo, lead with your refund loan products, and provide plenty of word-of-mouth referral programs.Here is some of the language from the web site: “Don’t Wait!” “Do the Fast Cash Victory Dance!”

Instant Tax isn’t doing RALs or checks (RACs) at all this year.  The office in Kansas City must have not gotten that point across.  That seems like some pretty basic information, especially if the main point of your advertising is that you can get your cash fast.

Other stores do have the message.  I called a store in the Triangle.

“We aren’t doing those (RALs) this year.  We’ll start back up next year.  We’re dealing with Santa Barbara, and the bank was having some trouble with a lot of people,” she said. “You know, its not the IRS that gives you the money. It is the bank, and what was happening is, a lot of people were owing the IRS money, and so the IRS wasn’t paying the bank. But, we’ll be back next year.”

Then again, the website clearly hasn’t gotten the update.  The title page is headered with the following statement:

“Fast Income Tax Preparation: Federal Taxes, State Taxes, e-file, Refund Anticipation Loans, and general income tax preparation.”

Maybe the webmaster worked for Pacific Capital.

I forgot to notice that Pacific Capital negotiated the sale of its tax refund division last week.It is an interesting event, and perhaps a commentary on the long-term viability of the refund anticipation loan business.

PCBC sold its tax division for just $10 million.  Only half of the money will be paid upfront. The other half will be paid to PCBC on March 15th.

$10 million isn’t much for a division that has moved $1 to $2 billion in loans during recent tax seasons.  It is even less when you consider that the buyer, Santa Barbara Tax Products Group, is claiming to have received more than just the book of business. They also got the real estate, the office’s computers, and their staff!

George Leis is going on and on about this is a chance for PCBC to go back to its roots as a community bank.  Nice. I guess that it was those RALs that were keeping them from meeting their goals.

He also notes that RALs constituted 40 percent of their net income last year. The American Banker adds that RAL programs (fees, gain on sale of securities, interest) generated  “virtually all of the company’s revenue last year.”

So, that provokes an interesting math question. If all of your revenue, 40 percent of your net income, and a bunch of commercial real estate in Santa Barbara San Diego, California is worth $10 million, how much is the remainder of the business worth?