MONEY Taxes

What Obama’s Tax Plan Would Mean for Your Wallet

150129_FF_TaxPlanWallet
Peter Dazeley—Getty Images

The president's State of the Union proposals probably won't go anywhere. But if they did, the true "middle class" would barely notice a change, a new study concludes.

In his 2015 State of the Union address, President Obama said his tax reform plan would lower taxes for middle-class families. According to a new analysis from the Tax Policy Center, that’s not quite the case. According to the TPC’s calculation, Obama’s tax proposals would hike taxes on top earners, offer tax relief to low-income Americans—and change little for everyone in the middle.

Though there’s a next-to-zero chance that Congress will pass Obama’s plan as is, here’s what it would look like, in dollars, if it were implemented. The Tax Policy Center found that the lowest 20% of earners—households making less than $25,260 a year—would save an average of $174 in 2016. The top 20% of earners would pay an average of $1,818 more.

The richest of the rich would take the biggest hit. Households in the top 1%—those earning more than $663,130 a year—would pay an extra $28,983 in taxes on average. And the top 0.01% would owe another $168,006. That sounds like a lot, but the top 0.01% of households earn more than $3.4 million a year. Under Obama’s tax plan, their after-tax income would shrink by 2.6%.

So with the ultra-rich paying much higher taxes, the upper-middle class would still make out okay. Households at the lower end of the top 20%, in the $141,662 to $200,181 range, would actually keep another $116 on average.

And “middle”-middle class? They would pay just as much as they pay right now. Households earning between $49,086 and $84,055, the middle quintile of earners, would see almost zero change in their after-tax income. They would pay $7 more, on average.

In fact, households in the middle 80%—if you earn between $25,260 and $141,662, this includes you—would see a 0% to 0.1% increase in their after-tax income, on average.

Obama’s plan has two main components. First, roll back tax laws that primarily benefit higher-income Americans. Second, create, expand, and consolidate tax credits that primarily benefit Americans with lower incomes.

For starters, Obama wants to increase the capital gains tax rate from 25% to 28% for taxpayers earning more than $500,000. That’s the tax on your profits from the sale of assets such as stocks, bonds, mutual funds, or real estate. Unsurprisingly, the Tax Policy Center reports that high-income Americans report the most capital gains.

The president also wants to close what he calls the “trust fund loophole.” Today, when you inherit an asset and later sell it, you owe taxes only on the gains you’ve earned since getting your inheritance (what’s called a stepped-up basis). Obama is proposing taxing all gains based on the original value of the asset.

Those increased tax revenues would fund a new tax credit for two-earner families, expand the earned income tax credit for low-income taxpayers, and consolidate several education tax credits into a more generous American Opportunity Tax Credit for college students.

However, don’t get too attached to your new tax return—Republicans have called the whole tax plan a “non-starter.”

In fact, Obama has already had to abandon one of his ideas in the face of bi-partisan opposition. His plan initially included a new tax on 529 college savings accounts—your 529 investments would still have grown tax-free, but you would have paid taxes on your earnings when you withdrew the money, even if it was to pay for college. (The Tax Policy Center did not take the 529 proposal into account in its analysis.)

White House spokesman Eric Schultz said the administration dropped the idea because “it was a distraction.”

And it goes to show how hard it is to change any aspect of the tax code.

MONEY Health Care

What Consumers Should Know About Rising Health Care Costs

A conversation with Steven Brill, author of "America's Bitter Pill," on what Obamacare did—and didn't do—for consumers.

In 2013, Steven Brill brought new clarity to the American health care system with his award-winning TIME cover story, “Bitter Bill: Why Medical Bills Are Killing Us.” Now he’s out with a new book on the same theme: “America’s Bitter Bill: Money, Politics, Backroom Deals, and the Fight to Fix Our Broken Healthcare System.” In it, Brill explores how the American health insurance system has evolved, the special interests that shaped the Affordable Care Act, the slow and troubled implementation of health care reform, and challenges we still face. He spoke to MONEY reporter Kara Brandeisky about his book and the key takeaways for health care consumers. (TIME and MONEY are sister Time Inc. publications and share a website. This conversation has been edited for length.)

MONEY: Your book is a comprehensive look at how the Affordable Care Act came to be. But it starts with this personal story about the experience you had as a health care consumer. How did your own open-heart surgery influence the way you thought about health care policy?

BRILL: Well, it sort of drove home something that I knew intellectually, which is that if—when—you’re a consumer in the health care marketplace, it’s not like being a consumer in any other kind of marketplace. We like to live in the illusion—or some people do—that health care can be bought and sold on the market the way any other product can because consumers can make a choice and they know what they’re doing and all the rest of it.

And the fact is that when I was lying there on that gurney, I didn’t know—and I didn’t care—what the price of anything was. I had no idea what I needed. I had no idea what the bills were going to be. When I got the bills, I had very little idea of what they meant—and I’m supposed to be, you know, an expert on this now. And when I got my explanations of benefits, not only did I have no idea, but—as you read in the book—the CEO of United Healthcare had no idea what it meant.

Who should Americans hold responsible for rising prices?

The members of Congress that, for example, passed a law that doesn’t allow Medicare to negotiate the price of prescription drugs. The members of Congress and local legislators and regulators that allow so-called nonprofit hospitals to enjoy very high profits and charge $77 for a box of gauze pads. It’s a matter of the United States deciding that it is going to join the rest of the developed world in controlling health care costs because it is not a free market that can function as a free market.

Obama said in his State of the Union that health care inflation is at its lowest rate in 50 years. [Former director of the White House Office of Management and Budget] Peter Orszag responded to your book, “The cost curve in health care is bending more drastically than I even believed possible in the fall of 2009.” What’s your response to that? Do you think we’re making enough progress at this point?

No, we’re not. And as the book recounts, Peter Orszag and his staff, until the very end, were writing memos complaining to the President and to the political staff that there’s next to nothing in this law that’s going to control costs. So he sort of is on both sides of the issue. And, you know, Peter wrote another piece in Bloomberg several months ago complaining that the law’s panel that was set up to judge comparative effectiveness is doing nothing to judge the comparative effectiveness of expensive treatments, and it’s time that we do something about that.

But saying health care inflation is low is not saying that costs are coming down. It’s just that health care inflation is now maybe two or three times overall inflation in the United States. And all that data that they cite are from the years 2011, ’12, and ’13, which are all before the core of Obamacare, the exchanges, even went into effect at the beginning of 2014. So I don’t know what they’re talking about.

But more important, if you take the trouble to read the law, all 965 pages of it, you will be hard-pressed to find anything except at the edges that does anything to address cost. There’s nothing in there that addresses prescription drug costs. There’s nothing in there that addresses what hospitals can charge and profits of hospitals, except for one provision that allows the IRS to restrict the billing collection practices of nonprofit hospitals for people who need financial aid.

And that is a provision—it’s very important. It’s a big deal. Senator Grassley, a Republican from Iowa, is the one who added that provision to the law. And that provision could have taken effect in March of 2010 when the law was passed, and it took the Obama Administration nearly five years, just until very recently, to write the regs to put that into effect. I could have written those regs in an hour and a half.

I thought some of the saddest stories in your book were about sick people who were burdened with outrageous bills because the Affordable Care Act regulations weren’t in effect yet or they hadn’t been written. What took so long?

You tell me. One of the motifs of the book is that the Obama people, from the President on down, are maybe really good at policy, but they’re just really bad at the nuts and bolts of governing. There is no explanation for why it would take five years to write that provision. It is not complex. It’s either that they were still in the grip of the hospital lobby or they were just not paying attention, just the way they weren’t paying attention to launching a website that would work.

You went and talked to Americans who could benefit from health insurance reform, and you found that they were pretty misinformed about some of the basic tenets of the law. What were some of the biggest misconceptions you encountered?

Well, it starts with the notion that this is a government takeover of health care. It’s exactly the opposite. It’s a plan that has its roots in something that Richard Nixon proposed in the 1970s that is a government subsidy of the private health care marketplace. Basically the government is subsidizing millions of Americans—which I think is a good thing—to go buy health care from private insurance companies who are going to insure them for services provided by private health care providers: hospitals, drug companies, medical device makers. So it buttresses the private sector. It certainly doesn’t interfere with it, let alone take it over. That’s one misconception.

The other misconception—and this is the Administration’s fault—is that a lot of the reporting talks about the premiums and says the premiums are $1,000 a month for a certain kind of plan. Well, they are, except for the fact that 87% of the people who are going on the exchanges are getting a subsidy, so that if you’re a family making $60,000 a year, a family of four, that $1,000 a month premium might actually cost you $300 because the government is chipping in a $700 subsidy.

The Obama Administration was really reluctant to talk about that because they were embarrassed that this was a major income-redistribution program, which is what it is. Once upon a time, the Democrats would have been proud of that. Now they’re really gun shy about it. As I point out in the book, just the Medicaid expansion in the law called for more people to get free health care—to get money from the government for health care—than the entire welfare program that Ronald Reagan ran against in 1980. And yet you didn’t see much about that. The Administration didn’t talk about it, and the press didn’t write about it.

In your original TIME story [“Bitter Pill”], chronicled how these hospitals were charging these outrageous prices, and hospital executives are making multimillion dollar salaries. So I think readers might be surprised that in your book, you say a solution is to let these hospital systems get even bigger and start insuring patients, as well. How did you come to that conclusion?

Well, because you’ve only described half of the solution. I say let them do that, but then treat them like the oligopolies or monopolies that they are, and stringently regulate their profits, their prices, even the salaries of their executives. In other words, if they’re going to be monopolies and oligopolies, and they’re going to keep their tax exemption as nonprofits, you can take a much different regulatory stance. I mean, it is totally beyond me that we have antitrust laws on the books that are supposed to regulate monopolies, and yet, Yale New Haven Health System, which is a monopoly by anybody’s definition when it comes to providing health care in New Haven, is not regulated.

And so my answer is, well, not only regulate Yale New Haven, but tell them to sell health insurance. In other words, if I live in New Haven, I’d rather buy my health insurance from Yale New Haven because it’s a great brand, it’s a great hospital. They’ve bought up so many of the doctors and clinics in and around New Haven. They own the Bridgeport Hospital. They own everything. So I could go to them and say, “Here’s my $10,000 a year for my health insurance. You keep me healthy.” And if that happens, they have no incentive to over-test or over-bill or keep me in the hospital an extra day because they’d only be charging themselves for that because they’d be the insurance company. And that all works fine again if there is real regulation, there are ombudsmen in place who really make sure that they don’t skimp on care now that they’ve gotten my $10,000.

But I think that is a realistic solution because it’s happening anyway. All these hospital systems are expanding and buying up doctors’ practices. Something like 70% of the doctors in the country are in practices owned or affiliated with the hospitals, owned by the hospitals or having some financial relationship with the hospitals.

And you also seem hopeful that tort reform could help drive down health care costs.

It would do a decent share of it, because it’s not about malpractice rates. It’s about the fact that if you go into an emergency room today and just use the word “head” as in “I have a headache,” “I fell on my head,” or even “I have to head to the bathroom,” if you use the word “head” you’re getting a CAT scan. And indeed, if you go on Google—or at least it used to be true, I haven’t done it lately—and type in “emergency room CAT scans,” all the ads on the right-hand side will be for trial lawyers. And so hospitals either have the excuse or the reason to over-test. And in the United States, we use CAT scans and MRIs three or four times as much per capita than they do in Germany, in France, in Japan and all those other places. And again, our results are no better.

[Since you’re a lawyer] I’m curious how specifically you think the system could be reformed.

Just have higher bars to lawsuits, penalize the frivolous suits, make it easier to get them thrown out. You could even have special courts which have doctors sitting as jurors. There are all kinds of proposals. The idea is not to make it impossible for someone to collect for actual malpractice, but to drive away the current system where in many places if there’s any kind of a bad result in a hospital or in a doctor’s practice, there’s a lawsuit and people have to settle it to keep going. And what doctors will do and hospitals will do is again they’ll say to someone who talks about a head, “Let’s give him a CAT scan so if anything bad happens we can always say, ‘Hey, we gave him a CAT scan,’ ‘We gave him an MRI. We did all this. We did belts and suspenders.’” That’s your defense. And that’s a very expensive defense for a lawsuit that doesn’t even necessarily happen.

You told [NPR’s] Terry Gross that as costs continue to rise you think there’s going to come a point where “something is going to snap” because “we can’t pay for this.” I wonder if you could talk a little bit more about what that breaking point might look like for consumers.

Well, we’re getting to a point where, in your own health insurance, your deductible keeps going up, your co-pays and your coinsurance keep going up, the amount you have to chip in for prescription drugs keeps going up. And that’s not because the insurance company profits are going up. It’s because their costs are going up, and so they have to keep raising their premiums and your employer can’t afford those premiums.

At some point, that’s going to become—I mean, I think it is becoming—unsustainable for people who even have good health insurance. And by the same token, it’s unsustainable for the federal government to be subsidizing ever-increasing insurance premiums for people who are buying insurance on the exchanges. So there’s nothing in the law that does anything about the core costs, the hospital costs, the drug costs. And it’s going to keep going up, and the share that the taxpayers are paying and that individuals are paying is going to go up even faster. And I think at some point, someone is going to organize a campaign around this.

Fifty years from now, how do you think historians will view the Affordable Care Act and what it did for consumers?

As a milestone, as an important milestone. Because at the bottom line, it went a long way toward erasing a national embarrassment, or disgrace even, which is that we’re the only developed country that hasn’t made some provision for all or most of our citizens to have access to health care. Now, in theory at least, every American has access to an insurance policy that will be affordable—although it’s not as affordable as it should be—and that will cover them part of the way so that they won’t either not get care and therefore have their health in peril, or even their lives in peril, or be sued into bankruptcy if they end up in the emergency room with a $9,000 bill for a bunch of CAT scans and an hour and a half of waiting.

Is there anything else that you hope consumers will take away from your book?

Well, I think consumers reading the book will certainly have a better understanding of how to read their own health care bills, how to complain about them, how to try to do something about them, how to ask the right questions. So there’s a consumer-friendly aspect of the book, too, I think.

What are the “right questions”?

“Why did I need that?” “What did that cost you?” Well, the first thing is, “What does that mean?” since most hospital bills are in code. It took me months to figure out what different hospital bills meant. But now there’s enough of a movement around that, after my article and after the stuff that Libby Rosenthal did [in her New York Times series, “Paying Till It Hurts”], that hospitals are finding they have to answer those questions.

And the power of embarrassment is not to be dismissed. If you start asking your hospital, “What is that mucus control device on the bill that’s $18?” And they say, “Well, that’s the box of tissues you got.” They may say, “You know what? Forget the mucus control device. We’ll take that off the bill.”

MONEY 529 plans

Why Obama Wants to Tax College Savings

U.S. President Barack Obama delivers his State of the Union address to a joint session of Congress on Capitol Hill in Washington, January 20, 2015.
Mandel Ngan—Reuters

In this week's State of the Union address, the president proposed ending a popular tax break on 529 plans. Here's what's behind that pitch.

In his State of the Union address Tuesday, President Obama promised to make college more affordable for low- and middle-income families. But one way he would pay for that would be to make college more expensive for millions of upper-income Americans.

The president proposed ending a key tax break on state 529 college savings plans. Today, the money you invest in a 529 plan isn’t deductible on your federal taxes (34 states and the District of Columbia give you a break on state taxes), but your savings grow tax-deferred, and you won’t owe any taxes on your earnings when you withdraw that money to pay for higher education expenses, including tuition, room and board, and books. Under Obama’s plan, those investment profits would be taxable, even if the money went toward college.

President Obama says he’d use the estimated $2 billion in additional tax revenues to raise the American Opportunity tax credit, which is a $2,500 write-off targeted at low- and middle-income families paying tuition bills. The administration points out that 529 plans disproportionately benefit higher-income households.

In essence, Obama is proposing making college more expensive for an estimated 2 million mostly upper-income families to ease the tuition burden for more than 8.5 million low- and middle-income families.

A Question of Fairness

This proposal—which is already facing Republican opposition in Congress—is based on concerns about the fairness of the 529 tax breaks that have been widely discussed among education-related think tanks and experts of all political leanings for years.

In all, federal taxpayers spend more on educational tax breaks than they do on popular financial aid programs such as Pell grants, noted a 2013 report by the Reimagining Aid Design and Delivery (RADD) Consortium for Higher Education Tax Reform. Not only are all the education tax breaks confusing and hard to collect, “students from families with the least financial need receive the most tax-based aid,” the report noted.

In theory, 529 plans aren’t just for the rich. Anybody can open one of these tax-protected colleges savings account for a child or for themselves. You can choose either a prepaid tuition plan, which lets you buy tuition credits ahead of time, or a college savings plan, which lets you set money aside for a future college student.

That tax break that the president wants to eliminate has been a key to 529 plans’ popularity. Since President George W. Bush signed the 529 tax exemption into law in 2001, families have opened nearly 12 million new 529 accounts and have socked away almost $250 billion for college.

And states have been marketing the savings programs. In 2012, the GAO found that 14 states offered matching grants to encourage low-income families to save. Some states even offered 529 brochures to new parents leaving the hospital.

Despite these efforts, very few low- or middle-income families have managed to save very much in 529s. In 2012, more than 97% of families had no special college savings account, according to a Government Accountability Office report. (The large number of accounts may be due to some families opening separate accounts for each child and parent.)

One reason for the low participation: Many still don’t know about 529s. Of parents who say they’re planning to send their kids to college, 49% don’t even know what a 529 plan is, Sallie Mae found in its annual “How America Pays For College” report.

Another factor: Low and middle-income families pay comparatively low taxes, so the tax break is not much of a lure to lock up money for one purpose. Families can take money out of 529s to spend on non-college expenses, but they’ll have to pay regular income taxes, plus an extra 10% penalty, on any earnings.

As a result, 529 investors tend to be wealthy. Families with 529s earned a median annual income of $142,400 and reported a median of $413,500 in financial assets, according to the GAO. About half of families with 529s (or similar Coverdell accounts) had an income above $150,000 in 2010.

And, in part because high earners typically owe higher taxes, the wealthy reaped large tax breaks from using 529s. In 2012, the GAO found that Americans who made less than $100,000 withdrew a median $7,491 from their 529s, saving just $561 on their taxes. But Americans who earned more than $150,000 withdrew a median $18,039, saving $3,132 in taxes.

In place of the tax break at withdrawal, Obama wants to expand the American Opportunity Tax Credit, which is currently phased out for families earning more than $180,000 a year.

The administration would like to expand the write-off to more students, such as those who attend college part-time. “It’s targeted in such a way that it will be most impactful to the students who need the assistance the most,” says Cecilia Muñoz, White House domestic policy director.

What Changes You’ll Really See

What does this all mean for you: Not much, at least for the near term.

If you’ve already got money in a 529, don’t worry. The president’s plan wouldn’t be retroactive. It would repeal the tax break on earnings only for future contributions.

And if you’re planning to start saving for college, there’s probably not much to worry about either. Republicans, who control both houses of Congress, have come out in opposition to the proposal. “You don’t produce a healthy economy and an educated workforce by raising taxes on college savings,” Brendan Buck, a spokesman for Rep. Paul Ryan, R-Wis., told the Wall Street Journal.

That means there probably won’t be extra money in the budget for much additional financial aid for low- and middle-income families. So you may as well start saving for tuition bills. Here’s how to find the best 529 plan for you.

Correction: An earlier version of this story misstated the proportion of new tax revenues that would come from families earning above $250,000 if Obama’s proposal was enacted. The reference has been removed.

 

MONEY Taxes

Now You Can Pick Up Your Tax Refund at Walmart

Walmart exterior
Cash for tax refunds is the latest financial service from the big box retailer. Saul Loeb—AFP/Getty Images

But should you take the retailer up on its new service?

This tax season, some shoppers could be walking out of Walmart with thousands in cash. On Tuesday, the company announced a new service that will let taxpayers “skip the check” and collect their tax refunds at Walmart stores across the country.

Here’s how it works: You have your taxes done at one of 25,000 outside tax preparers that offer Walmart’s “Direct2Cash” option and choose the service, which will cost you another $7 at most. Once you get a confirmation code, you go to Walmart and pick up your refund, in cash.

This is the latest in a growing list of financial services Walmart offers. You can also open a checking account and shop for health insurance at Walmart.

Walmart says its cash refund service is the first of its kind. The Internal Revenue Service lets you collect your refund a couple of ways. The simplest and fastest is to route your refund to your checking or savings account via direct deposit. If you don’t have a bank account or don’t want to use direct deposit, you can get your refund by check.

However, without a bank account, cashing a check can be expensive. Walmart reports that tax preparers charge clients a $20 fee to receive a refund by check. Then, Walmart says, you sometimes have to pay 1% to 2% of the check amount to a check cashing service to get your money. Last year, the average tax refund was $3,096, according to the IRS—which means you could pay more than $80 to get your refund.

Many Americans could face such a steep fee: About 9.6 million households had no bank account in 2013, according to a survey by the Federal Deposit Insurance Corporation.

But if customers pay only $7 at the time of filing, and Walmart doesn’t collect its own fee when customers pick up their checks, what’s in it for Walmart?

“It’s always a good thing to have customers in our stores who have jingles in their wallets and their pockets,” says Daniel Eckard, senior vice president for services for Walmart.

For customers, however, there’s a catch: Because you have to do your taxes at one of the 25,000 participating tax prep locations, you can’t take advantage of the IRS’s online tax-filing service, which gives you access to free online software if you earn less than $60,000. And if you make less than $53,000, you usually qualify for free in-person assistance from an IRS-certified volunteer (search irs.gov for a site near you).

So while you will pay no more than $7 to get your refund in cash, you may have to pay someone for the actual tax prep. Eckard says the costs will vary “on a preparer by preparer basis.”

The average cost for tax preparation is $246, according to a survey from the National Society of Accountants. Simple returns can be cheaper: The average cost of filing a Form 1040 and state return without itemizing deductions is $143.

“It’s not just how much it costs you to cash the check. It’s the sum total cost of what it costs you to get your money,” says Brett Theodos, senior research associate at the Urban Institute. “The costs of tax prep are going to outstrip the costs of check cashing, but they still add up.”

Your cheapest option is to file your taxes for free and open a bank account where you can deposit your refund.

While banking fees have been on the rise, making it hard to maintain an account when you’re financially squeezed, MONEY has surveyed the 70 biggest banks in the country to uncover the ones with the most generous terms. Use our Bank Selector tool to find the best one for you. Or see if you’re eligible to open an account at a local credit union, which usually offers lower fees and higher savings yields. Here’s how to find the credit union for you.

If you can’t or don’t want to open a bank account, you might be able to get your refund on a prepaid debit card. New York, Georgia, Louisiana, Oklahoma, Connecticut, and South Carolina let you receive your tax refund on a state-issued debit card, Bankrate reports. Some paid tax preparers will also load your refund onto their own prepaid cards. But prepaid cards may carry fees that cut into your refund, and if your prepaid card is lost or stolen, you could be out the money.

“Some of these account cards that are attached to institutions can actually be not-great deals,” Theodos says.

And if you do need to cash a check? At least one big retailer is now vying for your business. “It’s interesting—Walmart has emerged as the lower-cost place to cash your check,” Theodos says. “They must be viewing this as a successful business model.”

Correction: This story was updated to correct Daniel Eckard’s quote. He said “jingles,” not “jiggles.” We regret the error.

MONEY state of the union

What Every Consumer Should Know Before Watching the State of the Union

State of the Union address 2014
Jonathan Ernst—Reuters

A sneak peek at what Obama’s State of the Union ideas could mean for your wallet.

This year, President Obama broke with tradition and started previewing his State of the Union proposals in the two weeks before the big event. He went to Tennessee to talk about community college, to Iowa to talk about broadband, to the Federal Trade Commission to talk about identity theft, and even to LinkedIn, where his senior adviser published his plan about paid time off.

As a result, we already have a pretty good idea of what we’re going to hear Tuesday night—and what it actually means. Here’s MONEY’s take on Obama’s proposals.

1) Obama wants to raise taxes on the rich and give credits to the less-rich; Republicans say, “Yeah, right.”

On Saturday, the White House announced a proposal to raise the capital gains tax from 25% to 28% and close what’s sometimes called the “trust fund loophole.” Obama wants to use the revenue to create a $500 tax credit for families with two working spouses; expand the credits available to families with children; expand the education tax credit for college students; and force businesses without retirement plans to automatically enroll workers in IRAs. Republicans have said this plan is a nonstarter.

While political observers agree that these ideas stand little chance of becoming law, consider this Obama’s opening argument in the coming debate about tax code reform. Read more >>

2) Obama’s broadband plan might just fix the internet.

Think of it as the internet’s “public option.” Some cities, like Chattanooga, Tenn., have much faster internet than the rest of us. That’s because municipalities have built their own broadband networks to compete with internet providers like Comcast and Time Warner Cable, driving prices down and speeds up.

So why won’t your town do the same? Because it’s often illegal—19 states have laws preventing municipalities from creating their own networks. Obama plans to ask the Federal Communications Commission to override these laws. We don’t yet know if the FCC has the authority to do that, but if it does, Obama’s plan could change the way Americans access the internet. Read more >>

3) You already have identity fraud protection tools that are better than the ones Obama proposed.

Obama’s plans to fight identity theft aren’t nearly as ambitious. First, he’ll call on Congress to pass a new law requiring companies to tell you within 30 days if your personal data is exposed. Second, he’ll call on banks and financial institutions to give you access to your credit score for free.

But that won’t do much to protect your money. Most states already have even stricter laws about security breach notifications, and by the time an identity thief has tanked your credit score, it’s way too late. Instead, you’re better off with the tools you already have: chip-and-signature credit cards and free credit reports. Here’s what you can do today to beef up your fraud protection. Read more >>

4) President Obama will push for paid sick leave and paid maternity leave—but look to your city hall instead.

The United States lags behind the rest of the world when it comes to paid time off: 88% of American workers have no paid family leave, 39% have no paid sick leave, and 15% don’t even have unpaid leave. Obama wants to change that, starting with the Healthy Families Act, a bill that would let workers earn up to seven days of paid sick leave. He also wants to sign a memorandum giving federal workers at least six weeks of paid leave after a child is born.

But listen for more details about his third idea, to help states and towns start their own sick leave programs. Local government has been leading the way on this issue: California, New Jersey, and Rhode Island offer paid family leave, and more than a dozen cities have started offering paid sick days. Change seems more likely at the local level, so what specifically does Obama want the federal government to do? Read more >>

5) There’s not much hope for the free community college plan—but that’s okay.

Obama wants to offer free community college to about 9 million students every year. If you think that sounds great, don’t get too excited. Experts say the plan is dead on arrival—it’s too expensive, Republicans will never support it, and community colleges wouldn’t even be prepared for the influx of students. But there are already a ton of ways to take community college classes for free, or close to it. Read more >>

6) Lower mortgage insurance premiums will save homeowners money. But will that really help the housing market?

The Federal Housing Administration plans to lower government mortgage insurance premiums from 1.35% of the loan amount to .85%. That translates to a savings of about $900 a year. The hope is that will encourage more Americans—especially first-time buyers—to enter the housing market. But there are other reasons why this demographic hasn’t started shopping yet. Plus, Republicans are afraid the change could put more homeowners at risk of default. Read more >>

7) Book your trip to Cuba today.

Here’s the rare foreign policy issue with implications for your spring break: Pack your bags for Havana! While the announcement wasn’t part of Obama’s State of the Union “spoiler” tour, Obama is sure to talk about his decision to reestablish diplomatic ties with Cuba—and new travel rules went into effect on Friday.

Starting January 16, you no longer need a special government license to travel to Cuba, and neither do airlines or travel agents. Since the rules have been loosened, prices are expected to fall—but make your plans before demand picks up. Read more >>

MONEY work life balance

President Obama Wants You to Get Paid, Even When You’re on Leave

closeup of pregnant woman at office desk
Damir Cudic—iStock

New proposals for paid maternity and sick leave

President Obama thinks if you’re sick, or you have a newborn at home, you should stay home from work—and you should still get paid.

In many developed countries, that’s a given. Not so in the United States. Only 12% of American workers receive paid family leave, and only 61% have paid sick leave, according to the Bureau of Labor Statistics.

Ahead of the State of the Union on January 20, Obama is proposing big changes to the rules governing sick pay and family leave, outlined by senior advisor Valerie Jarrett on LinkedIn yesterday.

First, Obama plans to sign a memorandum giving federal employees at least six weeks of paid leave after the birth of a child. Second, he’ll ask Congress to pass the Healthy Families Act that would let workers earn up to seven days of paid sick leave. Finally, he’ll offer a plan to help states and towns start their own sick leave programs.

Even these proposals are meager compared to the paid family leave in other nations. The United Nation’s International Labor Organization surveyed family leave policies in 185 countries or territories around the world. Only two nations did not offer paid maternity leave: the United States, and Papua New Guinea.

Weeks of paid maternity leave % Pay
United Kingdom 52 weeks 90%
Canada 17 weeks 55%
France 16 weeks 100%
Netherlands 16 weeks 100%
Germany 14 weeks 100%
Japan 14 weeks 60%
China 14 weeks 100%
India 12 weeks 100%
Obama’s proposal for federal workers 6 weeks 100%
Average length of paid leave for American women who got it 3.3 weeks 31%
Paid leave required by American law 0 weeks 0%

And the other 183 countries? French mothers get 16 weeks, paid in full. Indian mothers get 12 weeks, paid in full. Mothers in the United Kingdom get six weeks paid at 90% of their usual salary, a little less for the next 33 weeks, and then they’re entitled to 12 weeks of unpaid leave.

American parents are guaranteed only 12 weeks of unpaid leave, total, provided they work for a company with more than 50 employees. That means 15% of American workers aren’t allowed even unpaid leave to care for their families, according to the Bureau for Labor Statistics.

Of course, some American employers choose to give workers family leave benefits. But it’s often not much. In the United States, only 41% of new mothers receive paid maternity leave, according to study in the Maternal and Child Health Journal. The 2013 study is based on a survey of 18- to 45-year-old mothers who gave birth in American hospitals in 2005. The women who did get paid maternity leave had an average of 3.3 weeks off and were paid just 31% of their total salary, on average.

Unsurprisingly, the more women earn and the more education they have, the more generous their maternity leave benefits tend to be. Still, just three out of five women with post-bachelor degrees received paid maternity leave—5.1 weeks, on average. (By contrast, only 29% of women with high school degrees or less received paid maternity leave, of 2.3 weeks on average.)

Then there’s sick leave. (You can guess where this is going.) According to a 2009 study by the Center for Economic and Policy Research, the United States was again the only country out of 22 industrialized nations that guarantees no paid sick leave. Americans are only protected by the Family and Medical Leave Act, which requires that employers give employees unpaid leave in the event that an employee needs to care for a family member with a “serious illness”—the flu doesn’t count.

President Obama’s family leave proposal would apply only to federal employees, and his sick leave proposal needs to get through Congress. So perhaps your best hope comes not from the federal government, but from your state legislature or city hall. California, New Jersey and Rhode Island offer paid family leave. California, Connecticut and Massachusetts have instituted paid sick leave. San Francisco, D.C., Seattle, Portland, Ore., New York City, Jersey City, Newark, Eugene, Ore., San Diego and more cities have passed paid sick day laws, too. And Massachusetts just guaranteed fathers more unpaid paternity leave.

MONEY identity theft

You Already Have Fraud Protection Tools That Are Better Than the Ones Obama Proposed

President Barack Obama arrives to speak at the Federal Trade Commission (FTC) offices at the Constitution Center in Washington, Monday, Jan. 12, 2015
Carolyn Kaster—AP

On Monday, President Obama previewed his two big solutions for the problem of identity theft. But it turns out they may do little for your wallet.

Americans are terrified of identity theft. They’re more afraid of identity theft than every other crime, Gallup says. And they have good reason to be: Over the past year, millions of consumers have had sensitive personal information exposed in data breaches.

Well, President Obama has heard your concerns. He’ll offer at least two big solutions in next week’s State of the Union address. Obama previewed those ideas during a speech at the Federal Trade Commission on Monday.

Bottom line: If you’re afraid of an identity thief racking up debts in your name, don’t rest easy just yet. Here’s what the president’s proposals wouldn’t accomplish—and what you can do instead to protect yourself.

#1: A federal notification requirement for security breaches

Obama’s idea: Pass a new federal law requiring businesses to tell consumers their personal information has been exposed within a month of a breach.

“Sometimes, folks don’t even find out their credit card information has been stolen until they see charges on their bill, and then it’s too late,” Obama explained during his speech at the FTC. “So under the new standard that we’re proposing, companies would have to notify consumers of a breach within 30 days.”

But Paul Stephens, director of policy and advocacy at the Privacy Rights Clearinghouse, says he worries that Obama’s national proposal could override existing state laws, which generally offer even stronger protections.

Altogether, 47 states have laws governing how businesses must notify consumers of security breaches. Most states “require notification in the most expedient/expeditious time possible and without unreasonable delay,” says Pam Greenberg of the National Conference of State Legislatures. Exceptions include Florida, which requires notice within 30 days, and Ohio, Vermont, and Wisconsin, which require notice within 45 days, according to Greenberg.

Stephens is also concerned that the legislation will give companies wide discretion to decide whether consumers are at risk—and, therefore, whether they need to be notified. “The mere existence of a breach should trigger mandatory reporting because individuals whose information has been breached have a right to know about it,” Stephens says.

What’s more, notes Stephens, in many cases it takes some time before the companies themselves know they’ve been hacked. And if law enforcement agencies are investigating the breach, authorities may ask companies not to disclose anything that would undermine the investigation.

We’ll have to wait and see on the details. The “Personal Data Notification and Protection Act” has not been introduced in Congress yet.

#2: Free credit scores

On Monday, the president praised JPMorganChase, Bank of America, USAA, and the State Employees’ Credit Union for offering their customers free credit scores as part of their packages of financial services. “We’re encouraging more companies to join this effort every day,” he said.

He’s had some help from the Consumer Financial Protection Bureau, which over the past year has been pressuring credit card companies to provide free access to FICO score information to help consumers make smarter financial decisions—and the effort is starting to bear results.

“This means that a majority of American adults will have free access to their credit score, which is like an early warning system telling you that you’ve been hit by fraud so you can deal with it fast,” Obama said on Monday.

But that’s where he’s wrong. Your credit score is the opposite of an early warning system—by the time your credit score has moved, you’re already in deep trouble, explains Odysseas Papadimitriou, CEO of CardHub.com, a credit card comparison site.

“Let’s say I steal your identity and I open a credit card under your name,” Papadimitriou says. “I get your credit card June 1. I get the bill July 1, that bill is due on August 1. I miss that payment. The next bill is due September 1. I miss that payment. At that point in time, I get reported—on September 1. All the damage is done. That’s why it’s completely useless.”

Having free access to your credit score is nice. But if the score is bad, it’s already too late.

What you can do now

First, get your hands on a “chip-and-signature” credit card. Experts are hopeful that this new technology could stem the near-constant retail data breaches. Visa and Mastercard have promised to update all their cards by October 2015.

Here’s how it works: The “chip” encrypts your transaction data, which should make it harder for hackers to raid retailers’ checkout systems and steal your credit card number. Stephens warns that identity thieves can still rack up fraudulent charges in your name if they get hold of your physical chip-and-signature card. A chip-and-PIN card is even better—that would require you to input a 4-digit PIN for any purchase. But any chip should help.

Second, check your free credit reports. Your credit report will show whether any new, fraudulent accounts have been opened in your name. Your credit score will only tank once someone has opened a fraudulent account and missed two payments. Papadimitriou thinks Congress should let Americans access their credit reports for free, at any time. Until then, you’re only entitled to one free credit report from each credit bureau every year—so check every four months.

While you’re at it, keep a close eye on your credit card statements. Report any suspicious charges. The good news is there are consumer protections in place to ensure you’ll get almost all of your money back in the event of fraud.

If an identity thief just stole your card number, you’ll ultimately owe nothing. If an identity thief stole your actual card, your liability is limited to $50 for credit cards and $500 for debit cards, depending on how early you report the problem. So you want to catch it early.

For more

MONEY Health Care

The Good News and the Bad News About Health Care Costs

syringe taking liquid from money vial
iStock

The growth of health care costs is slowing, but we're still paying more and getting less

The latest study on health care premiums is a good news/bad news situation. The good news is that premium increases are slowing. The bad news is that you aren’t seeing the savings.

Out-of-pocket health care costs—defined as premiums plus deductibles—now account for 9.6% of median income, up from 5.3% ten years ago, according to the latest report from the Commonwealth Fund, a non-profit health care research group.

That’s partly because health care costs have been rising much faster than incomes. From 2010 to 2013, premiums increased “just” 4.1% a year. (That might sound like a lot, but it’s an improvement from the 5.1% yearly rise between 2003 and 2010.) Meanwhile, from 2003 to 2013, median incomes rose only 1.2% a year on average.

And even as wages have stalled, employers have asked workers to shoulder more of their own health care costs. Deductibles for single coverage have more than doubled since 2003. Today, on average, Americans need to spend 3.8% of their income before health insurance kicks in. And as premiums have gotten 60% more expensive, employers have asked employees to cover an even bigger share of the total cost. You’re paying more, in other words, but getting less.

Your move? Change the way you budget for health care. Here’s how to keep your costs down in 2015.

1) Consider a high-deductible plan.

Sometimes, but not always, a high-deductible plan actually provides a better value than a plan with a lower deductible. While high-deductible plans make you pay more out-of-pocket, you should pay less out of your paycheck every month. According to the Kaiser Family Foundation, the average high-deductible plan for a single person has a $2,215 deductible and will cost you $905 in premiums. Compare that to the average single coverage PPO plan, which has a $843 deductible and will cost you $1,134 in premiums. If you rarely go to the doctor, you’ll save more every pay period with the high-deductible plan.

Employers love this kind of plan because it’s cheaper for them—remember, they’re still paying the bulk of your premiums—so 76% of employers offer financial incentives to encourage you to switch.

Before you make the jump, compare the amount of money you would save from lower premiums to the amount of exposure you face because of the higher deductible. Here’s how to decide which is right for you.

2) Use a health savings account.

About 70% of the Americans struggling with medical debt are actually insured, according to the Kaiser Family Foundation. How does that happen? Well, the Commonwealth Foundation found that the average deductible for single coverage is $1,273—and 62% of Americans don’t have savings to cover a $1,000 emergency room visit, according to Bankrate.

That’s why Americans with high deductibles need an emergency fund to cover unexpected medical costs. The best place for that special health-emergency fund is a health savings account (HSA), a tax-advantaged savings vehicle. You qualify for one if your deductible is at least $1,300 for an individual plan or $2,600 for a family plan. If your employer doesn’t offer one, you can open it on your own. Try to save at least the amount of your deductible. Unlike the “use it or lose it” money in flexible spending accounts, HSA savings roll over year to year; and if you don’t end up spending it on health care, you can use it for anything in retirement.

3) Check the price tags.

It’s still way too difficult to figure out how much a given medical procedure will cost ahead of time. But insurers and employers are trying to make it easier to chose less expensive options when they are available and convenient. According to Mercer, 77% of large employers now offer a price transparency tool to help you look up doctors ahead of time to and compare typical costs and quality ratings.

Using it can help you save, especially on procedures like MRIs and CT scans. A study from the Journal of the American Medical Association found that consumers who used a pricing tool before choosing an advanced imaging service saved $124.74 on average.

MONEY Debt

7 Ways to Free Yourself From Debt—for Good!—in 2015

How to pay off debt
PM Images—Getty Images

These smart and easy strategies can get you back in the black before you know it.

If you’re in debt, getting out may seem impossible.

One in eight Americans don’t think they’ll ever pay off what they owe, according to a survey by CreditCards.com.

But it’s a new year and a new balance sheet. And the seven steps here can help you put hundreds more towards your bills every month—while still living the kind of life you want.

Can you taste the freedom?

1) Know What You Owe

It may sound easy, but this can be the hardest part, says Gail Cunningham, spokesperson for the National Foundation of Credit Counseling. “A disturbing number of people come to our offices with grocery bags filled with bills,” she adds.

After you’ve tallied up your total debt, make a “cash-flow calendar” to track how much money is going in and out of your accounts, and when, Cunningham says. When do you get your paycheck, and how much do you get net taxes and benefits? When is each bill due every month, and what is the typical cost? How much do you spend on each of your other expenses, and when?

The more you want to procrastinate on this step, the more you need to do it.

“People resist doing this,” Cunningham says. “I think that’s because they’re afraid of what they’ll find. There’s nothing like seeing your spending staring back at you. That could force a behavioral change.”

2) Follow the 10×10 Rule

If you want to create a debt-repayment plan you can follow, you need to set reasonable and sustainable goals. Curb rather than cut your spending, advises Kevin R. Weeks, president of the Association of Independent Consumer Credit Counseling Agencies.

“Just like a New Year’s resolution to get in shape, it’s very difficult to go cold turkey and say, ‘I’m going to do all this, this week, or today,'” Weeks says. “People bite off more than they can chew, with good intentions.”

Start slowly by following Cunningham’s 10×10 rule: “If you could shave $10 off 10 disposable spending accounts, you’d never miss it, never feel it, never feel deprived—and you’d have another $100 in your pocket,” she says. “Little money adds up to big money.”

3) Spend Cash

Researchers have found that when people shop with credit cards and gift certificates, they are more likely to make impulse purchases on luxury items because they feel like they’re using “play” money. If that sounds like you, cut up the plastic.

And force yourself to feel the pain associated with spending real money by going on a cash-only diet.

“People who live on a cash basis typically save 20% over their previous spending, without feeling deprived,” Cunningham says. “It’s because using cash creates a heightened sense of awareness. You are more contemplative, and you realize you’re going to have to pay for things with hard-earned cash. Something clicks in that allows you to feel better about not buying the item.”

4) Tackle Christmas First

There are two possible ways you can go when it comes to prioritizing your debts: You can pay off your highest interest-rate balance first to cut your financing charges the most or you can pay off a small debt first to build confidence and momentum.

To decide which path is best, you need to know what drives you, Weeks says.

Whichever way you choose to go, Cunningham recommends beginning with a goal of paying off all your holiday spending debt by the end of the first quarter of 2015.

“That will keep you from dragging that debt along with you all the way through 2015,” Cunningham says. “You’ll be back to where you were debt-wise before the holidays.”

No matter what, expect a series of small steps. “It’s going to take time,” Weeks says. “If you’re looking to lose 50 pounds, you should focus on losing the first five and then you move yourself forward. It’s the same thing on the financial side.”

5) Reduce Your Rates

Don’t do all the work yourself. Get your lender to cut your interest rates.

One way to do that is a balance transfer. Many credit cards offer promotions of 0% interest for a year or more if you transfer your debt from an old card and pay a small fee.

You can save $265.48 on a $5,000 debt with a typical balance transfer, according to a new report from Creditcards.com. That’s assuming a 3% balance transfer fee, a 12-month 0% intro APR, and the debt being paid off within the year.

You could do even better than that if you used Money’s pick for a balance transfer card, the Chase Slate, which currently offers a 0% APR for 15 months, no balance transfer fee in the first 60 days, and standard APR of 12.99% to 22.99% after the promotional period.

If you won’t be able to pay off your debt in the promotional period, however, this might not be the best option. You don’t want to move your debt only to possibly get stuck with a higher APR than the one you already have. A better choice: Move your debt to the Lake Michigan Credit Union Prime Platinum Visa, which has no balance transfer fee and an ongoing APR starting at an ultra-low 6%.

Or, simply call your issuer and request that your APR be reduced. In another report, CreditCards.com found that two-thirds of people who asked for a lower rate got it.

6) Stop lending so much money to the IRS

The average household got a $3,034 tax refund last year. In other words, every month, an extra $253 was taken out of your paycheck and loaned to the IRS interest free!

Sure, you’ll get it back after you file your taxes, but don’t you need it now?

“I don’t want anybody to receive an income tax refund—that $250 a month can make a major, life-changing difference,” Cunningham says.

Rather than paying interest on your debt every month while the government gets your money, you should be funneling that cash toward your balance. On a $5,000 debt at 16%, adding $250 a month to a payment of $200 a month, you’d save $675 in interest and get your debt paid off in just over a year vs. two and a half.

You can put your money back in your pocket by adjusting your withholding on a W-4 tax form.

Of course, you don’t want to owe money at tax time, so use the government’s withholding calculator to figure out exactly how many allowances you should take. File your new W-4 with your human resources department and give yourself a raise.

7) Ask for help

If you can’t stop taking on debt or are really unable to make payments on what you owe, you may need professional help. Credit counseling can be especially useful if you’re struggling with student loan debt or medical debt, not just credit card debt.

Find a nonprofit credit counselor through the National Foundation of Credit Counseling or the Association of Independent Consumer Credit Counseling Agencies. Financial counseling should be free, though agencies can charge an enrollment fee for a debt management plan, which will consolidate your debt into one payment with a more reasonable interest rate, Weeks says.

If you don’t need professional help, but you need someone to keep you honest, ask a friend to be your accountability partner, Cunningham suggests. Share your debt repayment plan and check in periodically about how you’re doing. Leverage the positive power of peer pressure.

“People don’t want to let somebody down,” Cunningham says. “They don’t want to have to admit that they weren’t as committed to their plan long-term.”

More on paying off debt:

More on resolutions:

MONEY Jobs

Why Americans Finally Feel Better About the Economy

Smiling George Washington on dollar bill
Gary S. Chapman—Getty Images

It's been a long climb out of the Great Recession.

The recession ended in June 2009. The unemployment rate peaked in October 2009, and since then, it’s been almost cut in half. The labor market regained all 8.7 million jobs lost by June 2014. But for every week of the past six years, a majority of Americans have told Gallup that economic conditions were poor and/or getting worse.

Until now. Gallup’s U.S. Economic Confidence Index is a positive number for the first time since the beginning of the Great Recession.

To compute the index, Gallup takes the percentage of Americans who say economic conditions are excellent or good and the percentage who say the economy is getting better, and averages the two numbers. The index could theoretically be as high as +100, if every person polled said economic conditions were good and improving.

Today, the index is just +2. But after six years of negative economic confidence indices, any positive number is a milestone. And it’s been a great year-end: The unemployment rate fell to 5.8% in November. Both the S&P and the Dow hit record highs. And last month, we finally started to see some real, broad-based wage growth.

Americans might have more economic confidence if not for a number of other roadblocks. While the labor market has rebounded, an estimated 41% of job growth is in low-wage industries, which means Americans might not be able to find the high-paying jobs they need. Likewise, while wages are improving for low-wage workers, middle-class workers haven’t gotten much of a raise. And the long-term employed have struggled to re-enter the workforce—or have just stopped trying.

That said, the job market should continue to improve in 2015. And employers are getting worried about retaining talent—which means top performers may finally be in for a raise, or a higher-paying job somewhere else.

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