Financial Beat

Financial Beat

By Bernice Napach, Senior Editor

Taxes: More cost-of-living adjustments

Although you can earn more this year without moving into a higher taxbracket, your Social Security taxes will goup. That's because the tax—12.4 percent—will now be computed on the first$76,200 of income, up from $72,600. Since employers pay half the tax andworkers the other half, the change will cost most employed physicians anadditional $223.50. (Employers and employees also pay 1.45 percent eachfor the Medicare tax, but there's no wage base limit on that.)

Most of this year's inflation adjustments, however, are in the taxpayer'sfavor. They include:

• A $10,500 limit on the tax-deductible contribution to your 401(k), up from $10,000.
• A $135,000 maximum benefit from a defined-benefit plan, up from $130,000.
• A 32.5 cents-per-mile deduction for business use of an auto, up from 31 cents.

Bonds:Add tax-free munis to your portfolio

If you're planning to purchase municipal bonds, do it soon. They yieldalmost as much as Treasury bonds before taxes, and far more after taxes—but this advantage may not last long.

Currently, a typical AAA-rated 30-year municipal bond yields 6 percent,compared with 6.3 percent for a 30-year Treasury bond. Since interest onthe muni bond is exempt from federal income taxes, its after-tax yield isequivalent to 8.7 percent for investors in the 31 percent federal tax bracketand 9.4 percent for those in the 36 percent bracket.

"Municipal bond yields are at their highest levels since 1996,"says Mary J. Miller, director of the municipal bond department at T. RowePrice, the Baltimore investment management firm.

The reason: a supply-demand imbalance. Institutional investors such asinsurance companies have been shunning munis at a time when their supplyhas been rising. This has sent the bonds' prices southward, and their yields,which move in the opposite direction to price, north. By November, withyields topping 6 percent, retail investors took notice and started buyingmunicipals, boosting prices and depressing yields. That's why you shouldn'twait long before buying these bonds.

Recent price movements aside, another advantage of munis is their relativelylow volatility. They're not affected by global pressures because foreigninvestors, who can't take advantage of munis' tax benefits, are more likelyto buy Treasuries or corporate securities if they want to own US bonds.

Looking ahead, analysts expect munis to continue to benefit from retailbuying, at least through the first half of the year. Beyond that, however,demand could drop if presidential candidates float proposals that mightaffect their tax-free status.

Travel:Coming soon: more ways to book your flights online

Buying airline tickets online is getting easier and, probably, cheaper.

Priceline.com (www.priceline.com)has added three carriers—American, United, and US Airways—to its name-your-own-priceservice for leisure airline tickets. Altogether, eight airlines now participatein the Priceline.com program, representing almost 90 percent of the US market.The others are America West, Continental, Delta, Northwest, and TWA.

Of those eight, Continental, Delta, Northwest, and United plan to joinin creating a multipurpose travel site during the first half of this year.It will let you purchase tickets from those four and most other carriersvia the Web, and make hotel, car rental, and cruise-line reservations. Theairlines' individual Web sites will continue to operate.

This year will also mark the debut of the combined site of www.travelocity.comand www.previewtravel.com.The merged site—which will offer airline, car rental, hotel reservations,and vacation packages—will likely keep the Travelocity Web address, a spokeswomansaid. It is expected to debut this quarter.

There's more: Wal-Mart's online store, at www.wal-mart.com, nowincludes air, hotel, and car rental reservations.

Stocks:Find out more about mergers and acquisitions before they happen

Starting later this month, you should be able to learn almost as muchabout a pending merger, acquisition, or tender offer as many Wall Streetprofessionals. The Securities and Exchange Commission has updated its rulesso that information about in-the-works deals is more widely available.

The new rules are aimed at modernizing the regulatory scheme for corporatecombinations "so that it better reflects the realities of the marketplace,"says SEC Chairman Arthur Levitt.

Among the changes is a requirement that bidders for companies includea "plain-English summary" of their offers. Investors will thenbe better able to understand them and determine how to tender their shares.In turn, corporate executives and high-level negotiators will no longerhave to wait until after a registration statement is filed with the SECto begin talking publicly about a deal. They can do that as soon as theyfile their first written communication about it with the SEC. The commission,in most cases, will make those documents available to the public that daythrough its online system (known as EDGAR) at www.sec.gov/edgarhp.htm.

The new rules will also expedite stock tenders—that is, deals in whichan acquiring company uses stock rather than cash to buy out shareholdersof a target company. Traditionally, a cash tender could go forward as soonas the acquiring company had filed an offer statement with the SEC and disseminatedthat information to stockholders. A stock tender, however, remained on holduntil the SEC had reviewed the acquiring company's registration statement.Now both types of tender can proceed immediately after the SEC receivesthe necessary paperwork.

The new rules also will make it easier for US investors to take partin foreign mergers. Historically, foreign firms have excluded US shareholdersfrom their tender offers, mergers, and acquisitions because of the expenseof complying with US securities laws. Now those requirements will be waivedif US investors own 10 percent or less of the acquiring company's sharesthat are used in the offer.

The new rules were prompted by the explosive increase in mergers andacquisitions over the past several years.

Credit Cards:The skinny on travel-award cards

One of the easiest ways to accumulate airline frequent-flier miles isto use a credit card that awards them with each use. Choosing such a cardisn't easy, however, because of the many differences among them. Here aresome pointers to help you comparison shop.

There are four main types of card, each with its own benefits and restrictions:

• Airline cards, such as Continental Airlines' OnePass, let youearn miles on the frequent-flier program of the issuing carrier (and itspartners, if any).
• Bank-sponsored cards, like Chase Flight Rewards, award mileson many carriers' programs, but you may have to book your flights throughthe bank's own travel agency. In addition, you can't combine these mileswith those earned in other frequent-flier programs.
• Hotel cards provide awards that you can use for hotel staysas well as airline tickets, but they tend to charge relatively high interestrates—currently around 18 percent.
• Travel and entertainment cards programs, such as MembershipRewards from American Express, also allow redemptions on multiple frequent-flierprograms. But they tend to have high annual fees­and they don't letholders carry a monthly balance.

The best card for you depends on your needs. If you usually maintaina balance, for example, stay away from travel and entertainment cards aswell as airline cards.

Here are some of the best benefit-specific cards and programs, accordingto Consumer Reports Travel Letter. They exclude cards that reward mileson only regional airlines or shuttle flights.

Lowest interest rate

Capital One's MilesOne. This bank card charges a 9.9 percent fixed rateplus a $19 annual fee. Most other cards charge an adjustable rate, whichconsists of the prime, currently 8.5 percent, plus several percentage points.

Largest awards

Hilton Credit Card. This hotel card from American Express Centurion givesthree points for every dollar spent at Hilton Hotel properties and two pointsfor every dollar charged on other purchases. A point equals a mile.

Best redemption policy

First Union's AirMiles Plus Visa and Capital One's MilesOne. These twobank cards require only 18,000 miles for a free round-trip ticket on mostmajor airlines within a certain geographic zone, such as the Northeast orWest. A round-trip cross-country ticket costs 25,000 miles, and you canget to Europe and back for 50,000 miles.

Largest enrollment bonus

Platinum Delta SkyMiles. This airline card from American Express Centurioncredits 5,000 miles when you sign up, plus 10,000 more miles two to threebilling cycles later. You'll get one free companion ticket each year thecard is renewed, and an additional 10,000 miles if you charge more than$25,000 annually.

Most liberal expiration policy

American Express Membership Rewards, Diners Club Rewards, and MarriottRewards from First USA. The award points on these cards never expire.

Internet:Consumer complaints are on the rise

With an increasing number of consumers using the Internet, it shouldcome as no surprise that complaints are up, too.

Consumer agencies around the country reported that they received on average39 percent more complaints about Internet businesses in 1998 than in 1997,though at times gripes soared to almost 400 percent more. Data for 1999were not yet available in the report, compiled by the National Associationof Consumer Agency Administrators and the Consumer Federation of America.

Most Internet-related complaints, however, involve Internet service providers(ISPs), which connect computer users to the information superhighway, andonline purchases. Consumers groused about billing and refund disputes withISPs, and about goods that were paid for but never delivered. Many dissatisfiedcustomers characterized online auctions as disappointing—or worse. Somesuccessful bidders said they received something other than what they hadbargained for, or nothing at all.

Still, grievances about the Internet have yet to approach those regardingauto sales, auto repairs, and home improvement, which continue to top theconsumer complaint list. About 70 percent of the consumer-protection agenciesthat participated in the survey reported problems with these three areas.None reported Internet complaints in their top 10 list.

Bernice Napach. Financial Beat.

Medical Economics

2000;1:17.