For the week of January 7, 2008
The Labor Department’s December employment report put a chill on Wall Street last week. Employers
added only 18,000 jobs last month, the fewest since August 2003, and unemployment rose from 4.7
percent in November to 5.0 percent in December, its highest level since November 2005. A service
economy reading that beat expectations did little to offset worries about a potential recession. The Dow
closed the week at 12,800.18, down 4.20 percent, while the S&P lost 4.50 percent to end the week at
1,411.63. The tech-heavy NASDAQ dropped 6.35 percent to finish the week at 2,504.65.
Source: Morningstar.com. * Past performance is no guarantee of future results. Indexes are unmanaged and
cannot be invested into directly. Three and five-year returns are annualized. The S&P, excluding “1 Week”
returns, is a reflection of return to an investor, by reinvesting dividends after the deduction of withholding tax.
Population Predictions – As of Jan. 1, 2008, the U.S. Census Bureau estimates the nation’s
population at 303,146,284, an increase of 2,842,103 people or 0.9 percent over a year ago. The U.S.
registered a birth every eight seconds and a death every 11 seconds. Net international migration adds a
person every 30 seconds, for a net increase in total population of one person every 13 seconds.
More Than Half – Although only one in every 38 taxpayers reports an adjusted gross income of
$200,000 or more, that group pays 51 percent of all federal income taxes (Source: IRS, BTN Research).
Didn’t Drop – Nearly two out of every five American retirees (39 percent) are spending more money in
their retirement years than they did before they quit working (Source: Fidelity Research Institute, BTN
Tax Fact – A taxable income level of $100,000 for a joint return would place a couple in the 25 percent
marginal tax bracket in 2008. A decade earlier (1998), a taxable income level of $100,000 for a joint
return would be subject to a 28 percent marginal tax rate. Twenty years ago (1988), the corresponding
marginal tax rate was 33 percent (Source: Tax Policy Center, BTN Research).
Not As Rich – Only 37 percent of Americans believe their standard of living during retirement will be
equal to or greater than the lifestyle they maintained during their working years (Source: Mercer
Workplace Survey, BTN Research).
NASDAQ Performance – The NASDAQ was up 9.8 percent in 2007 (not counting the impact of
dividends). If you missed the four best days of the NASDAQ in 2007, your return falls to a 2.3 percent
loss for the year. If you avoided the four worst days of the NASDAQ in 2007, your return improved to a
gain of 23.7 percent. The NASDAQ Composite is an unmanaged index of securities traded on the
NASDAQ system (Source: BTN Research).
WEEKLY FOCUS - Congress’ Peter Pan Complex
Again in 2008 as in 2007, Congress has officially
extended childhood – at least for purposes of
calculating tax on investment income.
The “kiddie tax” specifies the age at which children
become a separate tax entity from their parents for
purposes of calculating tax on investment income. Prior
to 2006, children from birth to age 14 could earn
investment income up to two times the standard
dependent deduction and be taxed at their tax rate,
typically 10 percent. Any investment income over that
threshold was taxed at the parents’ presumably higher
tax rate. After 14, all investment income was taxed at
the child’s lower rate.
In 2006, Congress increased the age to 18 years. A child is considered to be 18 for the entire tax year in
which he or she turns 18. For 2007, the standard dependent deduction is $850, putting the threshold for
investment income at $1,700. That amount is taxed at the child’s rate. Anything in excess of that amount
is taxed at the parents’ rate.
Effective in 2008, the dollar threshold has increased to $1,800 – meaning an extra $100 stays taxed at
the child’s rate. In addition, Congress extended childhood to 19 and added in children under the age of
24 who are full-time students and whose earned income is not more than half of their support –
regardless of whether or not the child is a dependent. The kiddie tax applies only to investment income,
not earned income, so teens with jobs pay income tax on their wages at their tax rate, not their parents’.
Individuals who marry before age 18 presumably aren’t children anymore, and if filing jointly, file at their
Back when the kiddie tax stopped at 14, many families moved investments to the child’s name at that
age to take advantage of the child’s lower tax rate. As Congress has increased the age limit, however,
that strategy has become less viable. With a capital gains rate of just 5 percent for kids in the 10 percent
or 15 percent income tax bracket, however, parents in higher brackets may still want to consider
transferring appreciating assets. Call our office for help in determining when assets should or should not
be placed in a child’s name.
* The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of
the stock market in general. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded
blue-chip stocks. NASDAQ Composite Index is an unmanaged, market-weighted index of all over-the-counter
common stocks traded on the National Association of Securities Dealers Automated Quotation System. The
Morgan Stanley Capital International Europe, Australia and Far East Index (MSCI EAFE Index) is a widely
recognized benchmark of non-U.S. stock markets. It is an unmanaged index composed of a sample of companies
representative of the market structure of 20 European and Pacific Basin countries and includes reinvestment of all
dividends. WMCSAI# 265047
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