On December 26th, while we were all busy recovering from the Holiday and headed out for year-end clearance sales, the Treasury Secretary dropped a surprise on us.   He announced that the federal government will once again hit its ‘debt ceiling’ on Dec 31st, and that the Treasury will take ‘extraordinary measures’ to stretch out its checkbook.

Interestingly, the most comprehensive breakdown I’ve found of the ‘extraordinary measures‘ is from the UK’s Guardian, not from a US-based news organization.  The four measures, listed in order of magnitude, are:

  1.  Stop investments in to the Civil Service Retirement and Disability Fund (CSRDF)- the CSRS annuity for retired and disabled CSRS participants (note: I am clueless on the CSRS retirement system as I am not a participant.  The link is informative, but an opinion piece).
  2. Suspending investments in to the TSP G Fund.
  3. Halt issuance of State and Local government securities (SLGS)
  4. Cease contributing to the Exchange Stabilization Fund (used to purchase foreign currency).

What #2 means to you and me is that, among other things, the Treasury Department will take out a 401k loan against your TSP balance.  Specifically, the Treasury will borrow from the G Fund and issue IOU’s to pay them back at a later date.

If this all sounds familiar, it is.  This is one of many extraordinary measures the Treasury took last time the nation neared its debt ceiling in May of 2011.  After the debt deal was reached in August of 2011 (which set up Sequestration, aka the ‘fiscal cliff’), the TSP G Fund balances were made whole.

What’s it mean to you and me?  Probably not much, as long as:

  1.  You don’t take personal offense at the Treasury Secretary raiding your individual retirement funds (Your TSP balance).
  2.  All past and present government employees and military participants in the TSP do not all sell-off their G Fund holdings at once.
  3.  Institutional Investors and sovereign nations continue to purchase US Government-issued debt.

The mechanics of how the G Fund is raided are described pretty well in this 2002 GovExec article, when the G Fund was about to be raided in order to avoid a what-seems-paltry-now debt ceiling limit of $6 Trillion.


*** Updated 1/2/2013 with the ‘Fiscal Cliff Deal‘, updates in italics ***

Fiscal Cliff Deal Notes (Part Two) –

As promised, I’ve run the numbers on what the Fiscal Cliff (aka Sequestration, aka Taxmageddon) will cost Joe and Jane Sixpack.

There’s no chance of a deal being worked out by the lame duck Congress.  Both sides are too far apart and there are too few work days left in the year.  If you disagree with me, then I’ve got some arid mountain land to sell you in Florida.  (Update 1/2/2013, I was right about the Year, but wrong about the lame duck congress not making a deal before the new congress being sworn in).

So it’s time to brace for impact.  Crunching the numbers as promised, here are the assumptions:

  • Mid-grade Federal Employee, married w/2 kids, living on the West Coast or an expensive area like Washington DC (this covers over half of active Federal Employees).
  • Itemized deductions of $31,000 (reasonable assumption for areas with expensive mortgages).
  • 4 exemptions claimed
  • Annual Long Term Capital Gains of $8000.
  • Annual Qualified Dividends of $2600.
  • Health Care Flex Spending Account election of $5,000 in 2012 (capped at $2,500 in 2013).

Here are the calculations:

Holy Schnikes!  Looks like I’ll be paying Uncle Sam another $4k $3k next year for the same amount of work.   Note that these calculations can apply to just about anyone in the current 25% marginal bracket- just knock of the anticipated 0.4 percent hike in FERS annuity contributions.  (1/1/2013 Update Notes: still plenty of uncertainty about FERS contributions, still some uncertainty with the Executive Order-ed 0.5 percent pay increase for federal employees).

Feel free to plug in your own numbers plug in the new numbers to see how the ‘Fiscal Cliff Deal’ Sequestration will affect you.  Enjoy!

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There has been a lot of jibber-jabber about the effects of the federal budget sequestration ‘Fiscal Cliff‘, aka ‘Taxmageddon’, but to date I have found very little detailed anaylysis regarding its effect on the Federal Employee. So here goes…

I’m disappointed that NARFE or one of the government employee unions has yet to present a comprehensive, detailed breakdown of how all the proposed laws/orders will directly affect the Federal Employee’s wallet.  In their defense, there is a mishmash of laws, proposed bills, and executive orders to sift through.  If you’re a Govvie, give thanks that you’re not a defense contractor waiting for a layoff notice that may or may not come due to the muddied interpretations of the WARN act.

Sorry, Back to the topic.   I’m not an attorney or CPA, but in the interest of my own wallet, here’s how I see the proposals affecting a mid-career Federal Employee in 2013.  Note that most of these proposals hit Mr. and Mrs. Joe and Jane Sixpack in the private sector as well:

Law/Bill/Order

2012 Status

2013 Status

Effect

Expiration
of Bush
Tax Cuts
– Marginal Rate
25% (MFJ) 27% (MFJ) Increased Marginal Rate of 2%
Expiration of Bush Tax Cuts – LT Capital Gains LT Capital Gains -€“ 15% 20.00% Increase on LTCG of 5%
Expiration of Bush Tax Cuts – Dividends 15.00% 20.00% Increase on Dividends of 5%
Expiration
of Payroll Tax Holiday
4.2% of wages under $110K 6.2% of wages under $110K Increase of 2% on first $110K of wages
Federal Pay
Freeze
No Change No Change No Change
Increase FERS
Annuity Witholding
0.00% 0.40% Increased withholding of 0.4% of wages
Non-sequestration effects:
FEHB Increase of 3.7% Status quo Avg. Premium increase of 3.7% Increased FEHB premium by 3.7%
ObamaCare 50% cut to Medical FSA FSA Limit of $5,000 FSA Limit of $2,500 An additional $2500 in wages potentially taxed.

My goal for Part Two of the analysis is to provide a detailed breakdown like the Bush Tax Cut analysis shown here:

(Update 12/1/2012) Stay Tuned for Part Two!

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