Tag Archives: personal-finance

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Black Friday: Beware of Credit With a Catch

Black Friday is probably going to turn into Bleak Friday for some credit users at Oregon retailers. 

“When it Comes to West Coast Furniture Stores, We Have the Best Prices in Home Furniture,” Mor Furniture says on its website. On Nov. 26, the site is highlighting: “IN-STORE ONLY. No interest with equal monthly payments for 61 months on purchases of $6000 or more made with your Mor Furniture credit card. Equal monthly payments required for 61 months. Learn more.”

If you’re not careful, it could be a costly trap

Let’s say you buy furniture that costs $6,800. The monthly payment due for 61 months, Mor told me, would be $112.00.  BUT, if you still owe any of the $6800 at the end of the 61 months, even $1, Mor Furniture will charge you interest on the full $6800 at a 35.99% rate starting from the purchase date. 

Do the math. The total interest on an amortized $6800 loan paid off in 61 months at an annual interest rate of 35.99% would be approximately $7,422.39, more than the cost of the furniture itself.  In other words, that furniture will cost you $6,800 + $7,422.39, a total of $14,222.

Shop at Key Home Furnishings and you will encounter the same problem if you don’t pay off your entire purchase price in the time required. “No interest will be charged on the promo balance if you pay it off, in full, within the promo period.,” Key says. “If you do not, interest will be charged on the promo balance from the purchase date. The promo balance is equal to the promo purchase amount and any related optional debt cancellation fees. “

Wayfair credit card financing also offers 0% interest options for a set period (e.g., 6, 12, or 24 months) on qualifying purchases, but if you don’t pay the balance in full before the promotional period ends, you will be charged retroactive interest on the entire original purchase amount at a high APR. 

A perceptive consumer observed on Reddit, “One really has to study a business structure. They aren’t furniture dealers first, they are credit companies first, predatory lenders that have attached a tangible item or service to their scheme.”

It’s worth noting that deferred financial schemes are not restricted to furniture stores. Numerous other retailers offer it, too. 

For example, Car Toys, a specialty car audio and mobile electronics retailer, promotes “No interest if paid in full within promotional period” but “Interest will be charged to your account from the purchase date if their purchase balance is not paid in full within the promotional period.”

Window company Renewal by Andersen can trap consumers, too. NO MONEY DOWN, NO MONTHLY PAYMENTS, NO INTEREST FOR 12 MONTHS* its website says. Then it adds, “*Interest is billed during promo period but will be waived if the amount financed is paid in full before promo period expires.’

Anybody can be caught in these credit schemes, but the people most likely to be vulnerable are consumers with lower credit scores who suffer a job loss or medical emergency that makes it hard to pay off the balance, triggering the retroactive interest charge. 

The now beleaguered federal Consumer Finance Protection Bureau cautions all consumers to know the difference between zero interest and deferred interest, because the differences can have big effects on your wallet.

A zero percent interest promotion will not add interest based on the balance of your purchase during the promotional period. If you still have an unpaid balance when the promotional period is over, you will start to pay interest on the remaining balance only from the date the promotional period ends. 

In contrast, some retailers offer financing such as “No interest if paid in full in 12 months.” That’s when you need to be wary because it usually means the promotion is a deferred interest offer. 

Caveat emptor.

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Say “No” to Oregon Republican Push for No Taxes on Tips

What’s in the water in Salem?

On one side you have a phalanx of Democrats proposing the ludicrous idea of paying strikers unemployment benefits, which would make Oregon the only State in the country to grant unemployment benefits to striking public and private sector workers.

Not to be outdone in making nonsensical proposals, now you have a raft of Republicans, mimicking President Trump, proposing that the state forego taxing tips.

Here’s a tip – exempting tips from state taxes is a bad idea.

In their determination to position themselves as supporters of the working man (and woman), 21 of Oregon’s House Republicans have proposed a bill, HB 3914, to end taxation of tips, which are generally perceived as discretionary payments determined by a customer that employees receive from customers.

As written, the bill would not count “service charges” as tips. A restaurant, for example, recently added an automatic service charge equal to 18% of my bill. Even if that was intended to cover for a “no tipping” policy, it would be part of the server’s wages because it was not discretionary.

The 129-word Oregon bill gets right to the point, “There shall be subtracted from federal taxable income any amount of tips properly reported as wages on the taxpayer’s federal income tax return.”  That would automatically subtract tips from taxable income in Oregon, too. 

The bill deserves a quick death.

According to the IRS, “All cash and noncash tips received by an employee are income and are subject to Federal income taxes. All cash tips received by an employee in any calendar month are subject to social security and Medicare taxes and must be reported to the employer.” So, tip income is taxable income.

Charges automatically added to a customer’s check by an employer and subsequently distributed to employees are not tips; they are “service charges”. These service charges, which are appearing more often on Oregon restaurant bills, are non-tip wages and are subject to Social Security tax, Medicare tax, and federal income tax withholding.

Many consumers think the expanding pressure on customers to leave tips is already out of hand. A no tax on tips policy would likely expand the use of tipped work even further, potentially leading to consumers being asked to tip on virtually every purchase everywhere. 

A  New York Times article about tipping generated a lot of comments, many of which lamented the seeming spread of tipping expectations to multiple businesses and regardless of the amount of actual service by an employee. “Collectively, we cringe when the iPad is swiveled into our face at the coffee counter or deli; we know it is extortion rather than appreciation for services rendered,” said one person.  

There’s also a sense that some businesses are customizing the tip configuration on screen to exploit customers. Most people tip between 15-20%. If you buy a $2.85 espresso and the screen offers 15%, 20% and 25% tip options, you are likely to hit 15%, generating a tip of 43 cents. If a business wants to jack that up, however, it can give you $1, $2, or $3 options on purchases below $10, instead of a percentage. If you pick $1, you have paid a 35% tip. Devious, but effective.

Despite the massive increase in tipping expectations in recent years at multiple businesses, tax experts say a relatively small share of the workforce depends on tips. Only about 2.5% of American workers are in occupations that depend on tips, according to the IRS.  Among those workers, 37% earn less than the federal standard deduction. So, they already don’t have to pay federal income taxes.

Other tipped workers benefit from the earned income tax credit (EITC) and/or child tax credit (CTC) to the extent that they don’t have any federal income tax liability. In addition, because tipped workers would keep more of their income, employers could use this law as a justification for lowering workers’ base pay if it is currently above the minimum wage.

In fact, exempting tips from taxation can actually lead to situations where low-income workers end up effectively losing income through losing eligibility to tax credits such as the Earned Income Tax Credit (EITC) and Child Tax Credit (CTC).

The Budget Lab at Yale, a non-partisan policy research center, estimates that less than 3 percent of families would benefit from a broad-based income tax deduction for tips in 2026, but it would still cost the federal government more than $100 billion over the next decade. Restricting eligibility to workers in the leisure and hospitality industries would reduce the cost by more than 40 percent, but that would still leave a big hit on the deficit unless taxes were raised elsewhere.

Even the liberal Oregon Center for Public Policy opposes the no tax on tips idea.

In October 2024, Daniel Hauser, Deputy Director of the Center, said that ending taxes on tips “makes the tax system less fair” because workers receiving tips would get a tax break, but not low-paid workers in general.

If you have two workers, one a bartender who earns about $10,000 of his $40,000 annual income in tips and the other a warehouseman who makes all of his $40,000 income in wages, it wouldn’t make sense to give the bartender a tax break but leave the warehouse worker hanging out to dry, Hauser argued. 

 It also “creates openings for people to think about, how can my income be categorized as a tip and get this tax break too?,” Hauser wrote.  Third, he said, “if the goal is to help the economic security of low-income workers, it’s not very effective…and there are much better ways for us to try and help low-income families in Oregon.” 

He’s right.

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Rep. Suzanne Bonamici: No Friend of Working Families

U.S. Rep. Suzanne Bonamici, D-OR, is thrilled with President Biden’s actions cancelling student loan debt. She shouldn’t be. 

Even though she has a bachelor’s degree and a law degree from the University of Oregon, it’s clear she’s no economist. And even though she’s a member of the House Progressive Caucus and tries to package herself as an advocate for the common man (and woman), her support for student loan forgiveness suggests she’s no friend of working families either.  

That’s because, for one, the billions in student debt aren’t, in fact, being cancelled. The loans will still be paid off. The issue is by whom?

“The idea that the government is footing the bill for this policy is a bit misleading,” the American Institute for Economic Research points out.   “The cost of the program does not fall on the government. It falls on those who miss out on expenditures that would have otherwise occurred, those who pay higher taxes as a result of the program, those who pay higher interest rates or are crowded out due to additional government borrowing, or those who see the purchasing power of their dollars reduced more than usual.”

Even though the Supreme Court ruled that the Biden administration overstepped its authority in 2022 when it announced that it would cancel up to $400 billion in student loans, Biden has since been rolling out a series of debt forgiveness alternatives using a variety of executive actions.

Biden’s ingenuity in coming up with more loan repayment exceptions seems to have no bounds.  

On April 8, 2024, the White House announced an initiative that would:

  • forgive interest balances built up to date for 25 million borrowers, with 23 million likely to have all of their balance growth forgiven.
  • automatically cancel debt for borrowers eligible for loan forgiveness under several loan programs.
  • cancel student debt for borrowers who entered repayment over 20 years ago.
  • cancel student debt for loans associated with institutions or programs that lost their eligibility to participate in the Federal student aid program or were denied recertification because they cheated or took advantage of students.
  • cancel student debt for borrowers experiencing hardship paying back their loans.

While there’s no question student debt has become a burden for many Americans, Biden’s escalating efforts to relieve borrowers of obligations to repay student loans will add to the government’s annual deficits and the national debt. In other words, current student loan holders may escape repayment, but future taxpayers will have to pay the bill since Biden isn’t proposing any new revenue collections to cover the cost.

On April 11, the University of Pennsylvania’s Penn Wharton Budget Model estimated that Biden’s April 8 plans, if they are implemented, will cost the government $84 billion, in addition to the $475 billion that Penn Wharton previously estimated for Biden’s plans.

Rep. Bonamici must not care about that.  

Biden’s student debt forgiveness policies also raise serious questions about fairness. For example, according to Penn Wharton, eliminating student debt for borrowers in repayment for more than 20 years (or for more than 25 years with graduate debt) will provide debt relief for about 750,000 individuals residing in households that, on average, earn $312,977 in annual household income.

There’s also inequity in Biden’s plan to cancel up to $20,000 in interest for borrowers who have accrued or capitalized interest on their loans since entering repayment.  Low and middle-income borrowers enrolled in the SAVE Plan or other income-driven repayment (IDR) plans would be eligible for their entire interest balance since entering repayment to be cancelled if they make:

  • $120,000 or less per year individually or as married filing separately
  • $180,000 or less per year as a head of household, or 
  • $240,000 or less per year as married borrowers who file joint taxes.

Real median personal income in the United States was only $40,480 and the national median household income was just $74,580 in 2022. In other words, many college educated borrowers in Bonamici’s district who are eligible for relief under Biden’s plan are hardly struggling. And despite her assertion that she’s “standing up for working families,” many of her constituents with much lower incomes will end up covering the bills of their better-off neighbors.

Then, of course, a lot of Bonamici’s responsible working family constituents have probably made sacrifices to pay down their student loans, foregoing vacations, nice cars and restaurant meals. They will get no benefits at all from Bonamici’s generosity. 

Tough beans for them, I guess.