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Lou Dobbs Moneyline
Getting Defensive: Strategies to Safeguard Your Portfolio, Slash Your Tax Bill, and Find a Job
Aired April 13, 2001 - 18:30 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
JAN HOPKINS, CNN ANCHOR: April 13th, 2001. Have you paid your taxes yet?
Tonight: With the stock market under siege, layoffs mounting and the tax man calling, we have a special edition of MONEYLINE: "Getting Defensive." Strategies to safeguard your portfolio, slash your tax bill, and find a job.
ANNOUNCER: This is MONEYLINE. Reporting tonight from New York, Jan Hopkins.
HOPKINS: Welcome to this special holiday edition of MONEYLINE. I'm Jan Hopkins, sitting in for Willow Bay.
The markets today were closed for Good Friday. But this gives us the opportunity to take a special look at how to "get defensive" about your pocketbook.
We're taking your phone calls. The number is 1-800-304-FNET. 1- 800-304-3638. Get your investment and your tax questions ready, because tonight we're taking a special look at your money.
It's tax time, of course, and we'll be talking with one expert who says you can cheat on your taxes without breaking the law. We'll look at how to protect your portfolio at a time when the stock market is gripped in a bear market. And as unemployment begins to creep higher, we'll look at how to keep your career on track.
We begin with taxes. The clock is ticking, as you probably know. It's closer to Sunday, April 15th. And if you're tempted to just let the deadline pass without writing a check, will the IRS come after you? The answer may be a surprise.
Allan Dodds Frank has the story.
(BEGIN VIDEOTAPE)
ALLAN DODDS FRANK, CNN CORRESPONDENT (voice-over): One thousand Internal Revenue Service refund checks a minute are rolling off this new laser printer for the Secretary of Treasury's photo-op.
PAUL O'NEILL, SECRETARY OF THE TREASURY: All of IRS is kinder and gentler these days. FRANK: Indeed, the Internal Revenue Service has undergone dramatic change in the three years since Congress put IRS commissioner Charles Rossotti in the hot seat.
SEN. PHIL GRAMM (R), TEXAS: Well, any suggestions you have as to what we could do to make it easier for you to fire people who are abusive, and who violate the procedures...
FRANK: Three years later, a noticeable difference.
DAVID KEATING, NATIONAL TAXPAYERS UNION: For many, many years, the IRS employees were rated based on how much money they collected, how many cases they closed -- and now they're starting to evaluate employees on the kind of standards you see in the private sector. How well is the person being treated? Are they following the law?
FRANK: Intimidating taxpayers, widespread audits and seizures are out. Customer service is in. But even the IRS concedes, improving customer service has had its price.
DAVID MADER, ASST. DEP. COMMISSIONER, IRS: Our focus over the last three years has been to improve service to taxpayers. At the same time, there has been an unacceptable decline in our examination and collection activity. This is a concern to us, because it really causes individuals to feel that the tax system is not being applied equally to all taxpayers.
FRANK: Shifting employees from pursuing taxpayers to handling service calls has resulted in IRS cutbacks in audits, prosecutions, and back tax collections.
And there are fewer people to do the work. The IRS had 117,000 employees just nine years ago, and has downsized to around 98,000, while taxpayer returns have increased from $114 million to $125 million.
One former IRS commissioner says service without enforcement will not work.
DONALD ALEXANDER, FORMER IRS COMMISSIONER: This started with the notion that a well-educated taxpayer is going to be a fully compliant taxpayer. I reject that notion. There's some very well-educated taxpayers out there that don't meet the obligations of the country, and won't meet them unless they're made to meet them.
FRANK (on camera): The IRS has a major problem: measuring just how many taxpayers are complying. Since abandoning widespread random audits, the service has no way of calculating just how much it should be collecting, but is not.
(voice-over): The general accounting office, the investigative arm of Congress, finds the trends troubling.
JIM WHITE, GENERAL ACCOUNTING OFFICE: Because they can't measure compliance, they don't know whether this decline in audit rates or these enforcement programs have made taxpayers less willing to comply themselves.
FRANK: While many taxpayers are finding a kinder and gentler IRS, three of 10 callers still cannot get through to ask a question.
Alan Dodds Frank, CNN Financial News, Washington.
(END VIDEOTAPE)
HOPKINS: As Allan reported, the IRS has clearly pulled back from the days of aggressive audits and relentless agents. But there are still plenty of scam artists, peddling ways to cheat on your taxes that will put IRS enforcement hot on your trail.
Brooks Jackson has that report.
(BEGIN VIDEOTAPE)
BROOKS JACKSON, CNN CORRESPONDENT (voice-over): Don't fall for this one. A Web site, promising that for $89, they'll tell you how to legally volunteer out of paying taxes. But try it, and you could end up in jail. Tax scam promoters are proliferating on the Internet, selling bogus truss, and lame legal theories the courts have rejected for years.
And it's getting worse.
DWIGHT SPARLIN, SPECIAL AGENT IN CHARGE, IRS: We are definitely looking strongly at abusive promoters. And, again, like I said, they are becoming more and more prevalent, and becoming more and more bold.
JACKSON: The IRS says it's cracking down, but the agency's ability to catch tax cheaters has hit its lowest point in years.
J.J. MACNAB, FINANCIAL PLANNER: They can get away with it. The IRS is practically invisible right now.
JACKSON: Odds of being audited have never been lower. Less than one in 100, even for high income tax payers making over $100,000 a year.
And now, latest figures show criminal tax prosecutions have dropped by nearly half in the last decade. Civil court actions by the IRS have dropped even more dramatically. The new statistics were released by a nonprofit watchdog group associated with Syracuse University.
DAVID BURNHAM, TRANSACTIONAL RECORDS CLEARINGHOUSE: The audits are down. The collection activity, where they go after you to get the money that you haven't paid, is down. Civil enforcement's down. Criminal enforcement down. Everything is down.
JACKSON: Some still get caught.
(BEGIN VIDEO CLIP)
DOROTHY HENDERSON, CONVICTED OF SELLING FRAUDULENT TRUSTS: Hello, my name is Dorothy Henderson.
(END VIDEO CLIP)
JACKSON: Henderson used this marketing video to sell trusts in the U.S. and overseas, that's the IRS says clients used to illegally avoid $20 million in taxes. Henderson is now serving an 11-year prison term.
And some who bought into the Henderson scheme, including dentist Dana Gawley eventually got stuck, not only for the taxes they had avoided, also big interest, and penalty payments as well. His advice: Don't try it.
DANA GAWLEY, DENTIST: To find out three years after being involved in these trusts that it might be illegal, and I might have some part of it was extremely disheartening, and I was very, very scared.
JACKSON (on camera): Still, the risk of getting caught is low. Too low, according to the IRS. It's already hiring more criminal investigators and seeking a big budget increase, while planning to increase the number of audits significantly next year.
Brooks Jackson, CNN, Washington.
(END VIDEOTAPE)
HOPKINS: There is no doubt about it. People are pushing their luck with the IRS like never before. It was the topic of a recent cover story for "Forbes" magazine: "How to Cheat on Your Taxes." The author of that article joins me now, Janet Novack.
So, Janet, are we becoming a culture where people do cheat on their taxes more and more?
JANET NOVACK, WASHINGTON BUREAU CHIEF, "FORBES" MAGAZINE: I'm afraid we are going in that direction.
HOPKINS: But some of the cheating is legal, and some of it is not legal. Can you kind of distinguish for us the difference?
NOVACK: Certainly. What we were writing about was not only the proliferation of latently illegal schemes, such as the sham trusts, but the proliferation of what we call "at the edge schemes" -- the sort of schemes promoted by big accounting and law firms that the IRS actually has to go to court to prove are illegal. And these are schemes that clearly are not what Congress intended, but they're very difficult and expensive for the IRS to clamp down on.
HOPKINS: But also, there are ways that people can use legitimate loopholes, right, to save money on taxes?
NOVACK: Sure, and Congress has put a lot of the loopholes in there, and we encourage everyone to take advantage of every legitimate tax shelter they can. But there is a new ethic out there among a growing number of accountants and lawyers, which is, they will push the edge.
And, literally, entire deals are structured for no purpose other than manipulating the tax code. And the courts are saying, no, you can't do that. That's illegal. That's a sham.
HOPKINS: Any advice for people that are involved in these kind of tax shelters that are pushing the envelope?
NOVACK: Well, the key piece of advice is if someone comes to you with an idea -- very complicated idea that sounds aggressive, take it to an independent lawyer or accountant. Because the courts have said very clearly that if you rely on the opinion of the promoter, the guy who's going to make a buck from selling this idea to you, then they will not shield you from all sorts of penalties. In other words, you thought what you did was legal but you didn't get an independent outside opinion. Tough luck.
HOPKINS: Very good advice. Thanks, Janet Novack. She is from "Forbes" magazine. Thanks for joining us.
NOVACK: Thank you.
HOPKINS: And ahead on MONEYLINE, we'll get you up to speed on some other issues. We'll be talking taxes. And of course, we'll be taking your phone calls.
(COMMERCIAL BREAK)
HOPKINS: This is a special edition MONEYLINE. We will be taking your phone calls. First, questions on investments. We'll get the tax questions later. First calls about stocks. The phone number to call is 1-800-304-FNET. In the next half hour we will be taking the tax questions.
First, some of the day's other news. The U.S. flight crew that had been detained in China spent a second day being debriefed. This as the Pentagon offered a better look behind the standoff as Defense Secretary Donald Rumsfeld broke his silence over the collision between a Chinese fighter and a U.S. surveillance plane, charging that China was clearly at fault.
CNN military affairs correspondent Jamie McIntyre has the story.
(BEGIN VIDEOTAPE)
UNIDENTIFIED MALE: Hey, we got the ID on him.
UNIDENTIFIED MALE: Is he going out?
JAMIE MCINTYRE, CNN CORRESPONDENT (voice-over): In the videotape, taken by a U.S. crew January 24th, a Chinese pilot, identified by sources as Wang Wei, the same pilot who died in the collision, is seen cutting so close in front of an EP-3 surveillance aircraft, his jet-wash creates turbulence that rocks the slow-moving prop plane.
UNIDENTIFIED MALE: How far are we?
UNIDENTIFIED MALE: One's right there at ten o'clock, you're...
UNIDENTIFIED MALE: Oh. He's going right in front of us.
Same altitude, all right. Woah, we got bumped.
UNIDENTIFIED MALE: Felt that one.
UNIDENTIFIED MALE: We got thumped.
MCINTYRE: U.S. Defense Secretary Donald Rumsfeld used the tape in a show-and-tell to document what he called the kind of dangerous flying that prompted a formal complaint to China last December.
DONALD RUMSFELD, U.S. DEFENSE SECRETARY: Look at the plane's mushy behavior. You can see he's flying at a very slow speed for a fighter aircraft.
UNIDENTIFIED MALE: Oh, this guy's having a little bit of problems. He's squirrelly, not real steady. He's having a hard time maintaining his airspeed. He's got his flaps down a little bit.
UNIDENTIFIED MALE: Those planes are not designed to fly at 250 knots.
MCINTYRE: Contrary to initial reports, Rumsfeld said the crew destroyed only a "major portion," not all of the EP-3's secrets, which may account for why the Chinese haven't given the plane back.
(on camera): And that's the biggest reason the U.S. wants its plane back. While it may never fly again, it could help the intelligence experts figure out exactly what secrets were lost to China.
Jamie McIntyre, CNN, the Pentagon.
(END VIDEOTAPE)
HOPKINS: The streets of Cincinnati will soon be under a curfew for a second straight night. This after the city declared a state of emergency to curb days of protests following the police shooting of Timothy Thomas, an unarmed African-American teenager. Last night police arrested 136 people for violating the curfew, and officials say said they will decide on a day-by-day basis whether to extend that curfew.
(BEGIN VIDEO CLIP)
CHIEF THOMAS STREICHER, CINCINNATI POLICE: Saturday, we believe is a crucial day for us. As you know, the funeral is Saturday from 11:30 to 1:30. We expect a large turnout for that. We also have some intelligence information that there are going to be some large crowds around Saturday afternoon.
(END VIDEO CLIP) HOPKINS: Also today, Attorney General John Ashcroft sent Justice Department representatives to Cincinnati to review the practices, procedures and training of the city's police force.
Next on MONEYLINE, a quarter to forget for mutual fund investors. You're probably getting your statements. What we've learned after three months of market trauma: A look back, as the mistakes made, and how not to repeat them.
And call us. We're taking investment questions for fund manager Howard Ward, at Gabelli Funds. The number: 1-800-304-FNET.
(COMMERCIAL BREAK)
HOPKINS: We continue now with our special Good Friday edition of MONEYLINE: "Getting Defensive." Strategies to slash your tax bill, protect your job, and pad your portfolio. A few mutual fund investors padded their portfolio last quarter, the single worst three-month period in more than a decade for the broader market, and the worst ever for Nasdaq stocks.
Allan Chernoff looks at the damage, and the lessons learned.
(BEGIN VIDEOTAPE)
ALLAN CHERNOFF, CNN CORRESPONDENT (voice-over): Mutual funds are supposed to offer a measure of safety because managers spread investments across a variety of stocks, but the strategy failed for most mutual funds in the first quarter.
More than 92 percent of stock funds suffered a loss. Marc Klee's tech fund was down 35 percent in the quarter.
MARC KLEE, JOHN HANCOCK TECHNOLOGY FUND: The last two quarters have really been among the most difficult that I've seen in my investment experience. I've been in the business for 24 years. I've been co-portfolio manager of the fund for over 18 years, and we've never seen anything like the last two quarters.
CHERNOFF: Mutual fund managers have been unable to keep pace with the stock market. While the S&P 500 dropped about 12 percent the first quarter, the average diversified fund was down 13.1 percent. Growth funds fell an average 21.4 percent. Only value funds were able to beat the market, with an average loss of 3.7 percent. Technology funds, on average, tumbled more than 34 percent, even worse than the Nasdaq's 25.5 percent loss.
CHRISTINE BENZ, MORNINGSTAR: It was absolutely devastating. Definitely one of the worst quarters in recent memory.
CHERNOFF: The market's collapse had investors turning cautious during the quarter. Investments in all equity funds were only 1/10 what they were during the same period last year. Instead, investors ran to the safety of money market mutual funds, investing over $200 billion during the quarter, 2.5 times what they put in during the same period last year. Bond funds pulled in $50 billion. Last year, investors were bailing out of bonds. And conservative, value-oriented funds, like Bill Nygren's Oakmark Select Fund, attracted inflows. The fund gained nearly 11 percent.
BILL NYGREN, OAKMARK SELECT FUND: Probably most important to our success in the quarter, we didn't really have any disasters. By following the discipline, staying away from the very popular part of the Nasdaq, we weren't exposed to the stocks that were down 30, 40, 50 percent.
CHERNOFF (on camera): The Janus funds were exposed to those stocks. Many fund holders, though, are still hoping to ride out the Nasdaq storm. So, for the most part, they're keeping their money where it is.
But historically, money tends to chase performance, so unless the Nasdaq can continue its rebound, many investors are likely to remain hesitant to put new money into technology funds.
Allan Chernoff, CNN Financial News, New York.
(END VIDEOTAPE)
HOPKINS: Next up on our special edition of MONEYLINE: your calls and investment questions for fund manager Howard Ward. That number, again, is 1-800-304-FNET. Don't go away.
(COMMERCIAL BREAK)
HOPKINS: Welcome back to our special edition of MONEYLINE. We're taking your questions about your portfolio. And you can call us at 1-800-304-FNET, 1-80-304-36-38.
We're joined now by Howard Ward, he runs the Gabelli Growth Fund. Howard, we are going to go right to the phones. Our first caller is Carol from New York. Carol, your question.
CAROL: Hi. My question is, what does someone like myself do whose portfolio is about 50 percent down, and I own all the darlings of Wall Street: Cisco, Intel, AOL, Microsoft, and my time horizon is only three to five years. Should I be selling off part of it and rebalancing, or just holding?
HOWARD WARD, GABELLI GROWTH FUND: Carol, I think that you have a lot of the very best companies that you can invest in in the technology area. I know you are down 50 percent, and that certainly is very painful. But you really weathered, I think, the worst of the storm.
The time for people to get defensive was February of 2000. It's 13 months since then, and the Nasdaq has gone from 5,000 to 1,700. I think it's really time to gut it out, and have a long-term time horizon. Stick to it. You still got a few years to go.
HOPKINS: Linda from Maryland. Your question, Linda. LINDA: Yes. Is it still a good idea, with the market decline, to max out your 401(k), or is there something else that you should be doing with that money?
WARD: That's going to depend on your age and your time horizon, and also your risk tolerance. If you're going to be working for the next 10 years or longer, you really want to -- I don't know if max out is the word I would use, but I do think you want to have a very healthy participation in the stock market, and you should be diversified.
Have some growth, have some value. Maybe you do want to own some fixed income. But you still have probably 10 years plus of work life ahead of you. Prepare for your retirement. You need some capital growth. So, don't give up on the stock market just now, folks.
HOPKINS: Gene from Florida, your question.
GENE: I have a tech-heavy mutual funds, and it's way down. So what I'm going to do is I'm going to buy some QQQ, wait for 31 days, and then I'm going to sell the tech fund and take a loss on my taxes for next year. What do you think of that idea?
WARD: That's showing some creativity. I think that without knowing what fund you're in and what kind of tech holding you have, whether they're at the speculative end of the spectrum, or they're at the more conservative end of the spectrum, like Carol from New York, I don't know. But I think it's not a bad strategy in terms of taking a tax loss and still trying to keep your foot in that camp that has some aggressive technology exposure.
HOPKINS: Ali from Virginia, go ahead with your question.
ALI: My question is regarding the semiconductor sector, particularly Intel, Texas Instruments and AMD. What do you make of the opposing views from Lehman Brothers and Salomon Smith Barney. One is upgrading the sector, the other one is downgrading them? So, where do we go from here?
WARD: Well, that's a good question, and they're all somewhat different companies. Texas Instruments really focusing on digital signal processors that go into things like cellular handset. Intel is best known for its PC exposure, and AMD, which is competing with Intel in that PC area.
I think it's important to note that the stocks move ahead of the bad news and ahead of the good news. And again, a year ago was the time to be selling these stocks in advance of the bad news. We've had the bad news. The stocks are way down. The valuations are attractive for long-term investors.
The news may get worse. I don't know, I mean, Dan Niles at Lehman could be right. The news could be worse for another quarter or two, I don't know. But I do think that John Joseph at Salomon Brothers may have a little bit of my ear here, because I happen to believe that these are good prices, good entry point for these stokes. I'm not an AMD fan as much as I am Texas Instrument and Intel, and I would buy those stocks here.
You are never going to get to have a bell that goes off and says: "Boom, that's it, that is the bottom, get in." It's just not that easy. Take advantage of the weakness. Take a two-year time horizon, and good luck.
HOPKINS: Kabir from New York, your question.
KABIR: Thank you for taking my call. What's your outlook on i2 Technologies?
WARD: I have to tell you, i2 Technologies is a name I really don't know well. It's in the software area of business-to-business, B-to-B, but it's not an area that I know that well. So, I'll pass on that one.
HOPKINS: Thanks, Howard Ward. Tell us how your fund has done so far this year.
WARD: Well, we're down about 17 percent, which is pretty much in line with the average large cap growth funds.
HOPKINS: But it's up in the last week, right?
WARD: We were up about 10 percent in the last week or so. So, I think that there's some arguments to be made that we've seen the worst.
HOPKINS: Thanks, Howard Ward, Gabelli Fund, thanks for joining us.
WARD: My pleasure, Jan.
HOPKINS: We will be taking tax questions next. MONEYLINE will return.
(COMMERCIAL BREAK)
HOPKINS: Welcome back to this special edition of MONEYLINE: getting defensive. We've been talking about tax and investment strategies. How to look -- how to keep your career on track is the next topic. The American economy lost jobs at an alarming rate in March, and this week the government reported that first-time claims for unemployment jumped to a five-year high. But how weak is the job market, really? One good barometer: Demand for college graduates.
Peter Viles hits the campus in College Park, Maryland.
(BEGIN VIDEOTAPE)
PETER VILES, CNN CORRESPONDENT (voice-over): The economic slowdown is taking some of the sizzle out of one of the hottest corners of the job market. The rush to hire college graduates. Still, jobs are plentiful for this year's seniors, and while technology investors may be singing the blues, technology students are not. UNIDENTIFIED MALE: Most of my friends aren't worried about getting jobs. I'm in the information systems field, and there's tons of jobs out there.
VILES (on camera): About 4,000 seniors will graduate this spring here at the University of Maryland. And counselors say jobs are waiting for most of them. The difference this year will be in the perks. These seniors won't get the kind of signing bonuses and stock options that last year's class received.
ROBERTA KASKEL, U. OF MARYLAND: There's certainly, I think, a more realistic approach to the fact that they will not be calling the shots. They will not go back and say to a company, this is really (UNINTELLIGIBLE) , this is a great starting salary, and I really like the bonus. Where are my stock options?
VILES (voice-over): A survey by colleges and employers found that 45 percent of employers have decided to cutback hiring plans, 47 percent are sticking with their plans from last August, 6 percent actually intend to hire more. But the bottom line: Those companies intend to hire 18 percent more college graduates this year than they did a year ago.
So if there is a recession building, it has not hit college campuses.
MARVA GUMBS, GEORGE WASHINGTON UNIVERSITY: No, not at all. I've been through the recessions. This certainly does not feel like a recession.
VILES: That said, at George Washington University some big recruiters are cutting back.
GUMBS: But you have to understand, people who recruit actively on colleges sometimes come for 50 or 100 folks. So, perhaps they are coming for 40.
VILES: Even in a cooling economy, counselors say some job categories are still hot: Biotechnology, health care, teaching, government jobs and almost anything in technology.
UNIDENTIFIED MALE: There's just plenty of jobs. There's still tons of demand, as far as I can tell, for quality technical workers.
VILES: Still, some students outside of technology sense the job market may have peaked a year ago.
UNIDENTIFIED MALE: I wasn't really in the job hunt back then, although a lot of people told me that I should have been.
VILES: So the class of 2001 may go down as the class that had to put some hunting skills back into the annual job hunt.
Peter Viles, CNN Financial News, College Park, Maryland.
(END VIDEOTAPE) HOPKINS: Here to talk about the job market and career opportunities: John Wood, of Spencer Stuart, an executive search firm, and Jim Treacy, the COO of TMP Worldwide, the parent company of Monster.com. Welcome to both of you.
Let me talk with you first, Jim, because we were just on a college campus. What about on-line recruiting. Are you finding companies that are going on-line to get students and new hires as much as last year?
JIM TREACY, TMP WORLDWIDE: Yes, it has not really moderated that much at all. Even the companies that have cut back some of their hiring still have a presence and they are hiring people, and in particular, they to stay in front of the young people coming out of college.
HOPKINS: Are you also seeing more resumes going on line from people that are looking for jobs?
TREACY: Yes, we're seeing a great deal of resumes. Actually we announced today that there's now 9.6 million unique resumes on monster.com and there's only 142 million people in this country that go to work. And I think one of the factors is people reading the headline and saying, you know, "I better watch out. I remember when dad got laid off in the '80s and I'm going to proactively manage my career."
HOPKINS: So it's proactive looking for a job, not because the people are laid off.
TREACY: Absolutely.
HOPKINS: So, John, let's bring you in. You are doing a lot of searches for executives. Are companies looking for as many executives as in the past?
JOHN WOOD, SPENCER STUART: Well, we're coming off the great American job fest. So there's still a lot of activity. The mention of health care and biotech, that continues to be a hot sector. Consumer continues to be hot, financial services is off a bit. Board room and CEO, senior-most searches, those continue to be very active. But it's been a great few years and I don't think we can replicate the ultra hot market of last year.
HOPKINS: This is a question for both of you. What are the job seekers looking for now? Are they as sure that they want stock options versus maybe more pay? John, you first.
WOOD: That's very true, especially at the senior-most level. It had been that equity was everything for people, and the optimism that was around the economy, give me a few good options and I'm ready to go. Now, CEO and senior-most executives are looking for restricted shares, big sign on bonuses, a lot more certainty. It's actually taking longer to close searches because you have to go through these other machinations of finding other compensation alternatives you didn't have to do before. HOPKINS: And are you seeing the same thing?
TREACY: Yes, I would tend to agree. We see that up and down the ladder. It's a balance in compensation. I do think stock options are a part of the compensation permanently in the minds of the work force. Maybe not as extremely valued as it was, but most people tend to understand that's the best way to build equity if you're good at what you do and your company's good.
HOPKINS: Since we're giving a lot of advice tonight: Your best advice to anyone with a job or looking for a job.
WOOD: Well, the innovation of having an on-line resource is terrific. You can do a lot of work, get a lot of advice, post your resume in several different places. Find the one that's right for you. Register, gather information. That's probably the new best tool that's out there. Networking, being pro-active, being more flexible than you have been in the past. Be willing to relocate. Those are key more than ever.
HOPKINS: Actually, we're going to come back and take a break, so we'll hear from Jim, with his best advice when we come back.
Coming up on MONEYLINE, we'll continue the discussion on the health of the job market. Jim Treacy and John Wood will stay with us. And we'll find out where the job opportunities are, and which sectors are cutting back.
(COMMERCIAL BREAK)
HOPKINS: We now continue our roundtable on jobs with John Wood, of Spencer Stuart, an executive search firm, and Jim Treacy, the COO of TMP Worldwide, the parent company monster.com.
And, Jim, we promised to get your best advice for someone in the job market or looking for a job.
TREACY: I think the best advice I could give is work is a great deal of what you do in your life. Don't take it so seriously. It's supposed to be fun. It's part of the journey. Keep picking up knowledge. Demographically you are in big demand. You're going to for a long time, 4.3 percent is still pretty low unemployment. If you're good at what you do, you'll find something if you're proactive.
HOPKINS: So what sectors are cutting back? What are you seeing John?
WOOD: Well, obviously the dot-coms. Financial services, and that's kind of it. We continue to get a lot of assignments from the consumer sector. A lot of assignments from private equity firms, portfolio companies as they get back in the market, are more aggressive and spend some of the money that they've harbored over the last several months.
So, it's not a significant downturn at the executive ranks, save the dot-com frenzy has dissipated. HOPKINS: What are you seeing? What's cutting back?
TREACY: I'd say similar to that. I think there's no question you're feeling the effect of the dot-com bubble go through the economy. The financial service firms hired too much for all those IPOs they were taking our there. The advertising firms beefed up a little too much and they were growing off those dot-com budgets on top of their typical budgets from Ford or IBM. So their growth is a little slower...
HOPKINS: Is technology still in demand?
TREACY: Technology -- if you're looking to work for a pure technology company in Silicon Valley and that's it, it's much tougher. If you're willing to go to work in the technology department at TMP Worldwide, or Wal-Mart, thank God it's Friday, the world is still your oyster. So, it's where will you go and who will you work for?
HOPKINS: Very interesting. We have to leave on those words of advice. Thank you both, John Wood and Jim Treacy.
Coming up: did you know you have to work until May 3rd to pay all your taxes for this year? Four months on the job just to satisfy Uncle Sam. Want to keep more of your money for yourself? We'll get some last minute tax advice. Call us at 1-800-304-FNET. I think May 3rd would make it five months.
(COMMERCIAL BREAK)
HOPKINS: We got a clearer picture of the finances at the White House when President Bush and Vice President Cheney released their tax returns for 2000. The president reported earning $894,000 in taxable income, and paid -- actually, the Bushes paid 240,000 in federal taxes.
That was nothing compared to his second-in-command. The vice president declared $36 million in income, most of that coming from the stock and stock options in his former company Halliburton. His tax bill: a whopping $14 million. Another blow for the vice president: he had to pay a $4.6 million balance to the IRS with his filing.
Most of us don't have tax bills anywhere near that large, but we still have plenty of questions. And for some last minute advice and advice for next year, we're joined by Gary Schatsky. He is Objectiveadvice.com, and he'll be taking your tax questions, so you an call us at 1-800-304-FNET.
And I think our first guest is Jim from Florida.
JOE: Yeah, Joe from Florida. My question is, if I have over 200,000 in my IRA, and I'll be 70 1/2 in five years. I really don't need the money, but how much would I have to take out when I hit 70 1/2? Is there a certain amount I have to take out?
GARY SCHATSKY, FINANCIAL PLANNER: Yeah, there's a formula, and as a matter of fact, the formal changed just recently, just a couple of months ago. And you must make your first withdrawal on the April 1st after you turn 70 1/2.
It's based on life expectancy tables, which -- one of the really good changes in the Internal Revenue code and the rules, is that it's much simpler. There's one chart you will be able to go to. It will be a couple of percent in the first year, and it grows as you get older, because your life expectancy is lower.
Certainly if you can afford to delay taking the money, delay until the last possible moment.
HOPKINS: Ron in Florida has a question -- Ron.
RON: Yes. My mother is 82 years old, and she has a stock account. I would like to know that when she passes away, how can the funds be distributed to her heirs without paying a capital gains tax?
SCHATSKY: Well, it's a great question, and the good news is there is no capital gains tax. When someone passes away, you get what is normally called a stepped-up basis. Meaning, regardless of what your mother might have paid, even if she paid a dollar for a share of Coke a 100 years ago, or 50 years ago, when someone passes away, there's no capital gains tax. It's stepped up to the value as of the date of death.
Now, what's kind of interesting is the law can possibly work against you, if in fact, you bought it at a higher price and then you pass away, you get a stepped-down basis. So, you have no capitol gains tax.
HOPKINS: And Ray in Kentucky, go ahead.
RAY: Yes, can you hear me? Yes, I have a question -- if you have ever heard of a gentleman by the name of Irwin Schiff, wrote a book called "Federal Mafia." Claims zero on your income tax return, that there is no law on individuals filing income tax. Is there any real deal to this?
SCHATSKY: I know of none of it, and I probably wouldn't counsel you to go that way.
HOPKINS: Mindy in California, your question.
MINDY: Yes, hi, we're getting hit with $1.4 million AT tax bill this year. That alternative minimum tax thing, where you get stuck with paying for what the stock was valued at last year, and it's not there anymore.
SCHATSKY: Right.
MINDY: And I'm wondering if there's any options for dealing with this -- any reduction that we could get in it, or a recouping of it that we could get next year for credits, or something of that sort?
SCHATSKY: Interesting. Well, it's the first reaction a lot of people are going to have is congratulations. Because they imagine if you're paying that amount, it must mean you had an awful lot of income.
What you're referring to is alternative minimum tax. It's one of these kind of insidious taxes which can creep up on a lot of people. And people who have exercised stock options, which is I think is what you encountered, often get hit with it. And particularly with the market downturn, you often don't have the income to pay the tax.
The somewhat good news is that often you can carry forward the alternative minimum tax, this extra tax that you paid, to future years so you might get it credited back in a future year. But it's not a guarantee. It's a tough situation to be in. It's one of the few times when you're paying tax and you really might not have had the income.
HOPKINS: It's part of the reason the stock market is down.
Erica of New York, your question.
ERICA: Yes. My father passed away this year, and his total assets were less than the 650,000 lifetime exclusion. Do I need to file a tax return, and if I do, what kind?
SCHATSKY: Well, first of all, this year, it's 675,000. You don't have to file -- there's two types of tax returns, there are estate tax returns, for an estate, which is 675,000, and income tax returns.
And you won't to have file an estate tax return on the federal level, although depending on a state you're in, there might be -- there are still a few states that have their own estate tax. But you will have to file a final income tax return for whatever income he might have had in the last year.
HOPKINS: Mark from the Virgin Islands, your question.
MARK: Yes, my employer changed my exemptions on my W-2 -- excuse me, my W-4 without my approval. They said I did it orally. I never signed one, and (UNINTELLIGIBLE). And I'm stuck with the year tax burden now, and I'm trying to figure out what would benefit by employer to do this.
SCHATSKY: That's an interesting question. Normally, you have to fill out a W-4 form, which is this form that says how much exemptions you would like. There's really no advantage for the employer to withhold less from your paycheck. So, I can't really understand it. Presumably, you have received extra money throughout the year, and hopefully, you didn't spend it, although it's kind of hard.
HOPKINS: Maybe it was a mistake. Gary Schatsky, he is from Objectiveadvice.com. Thank you for joining us and for answering our questions.
Just ahead: our financial editor Myron Kandel has some tax tips of his own, and he's next.
(COMMERCIAL BREAK) HOPKINS: Our financial editor, Myron Kandel, was here with some ideas about how you can save on your taxes next year -- Mike.
MYRON KANDEL, CNN FINANCIAL EDITOR: Well, Jan, while everybody has taxes on their minds, it might not be a bad idea to think ahead. Now, a lot of people, as we know, have taken big loss in the market, particularly in tech stocks, but in others as well.
Now, if you think the market is going to higher, you might think about shifting out of one company in which you have a big loss, lock in your loss, and then buy another one similarly situated -- or perhaps, you might think, do even better.
Now, a lot of people make a mistake. They say: "I'm going to sell that stock when I get even." Well, that's silly, because the market doesn't know or care when you bought that stock, and when you get even is of no relevance. So the idea is to be proactive and consider the possibility of taking a loss, even now, if you think the market's going to go higher, and you've got a better possibility.
HOPKINS: Thanks very much. Myron Kandel.
Up next, calling all tax deadbeats: why the IRS may not be able to track you down.
Plus, "Ahead of the Curve." Some of what you need to know before the markets open on Monday.
(COMMERCIAL BREAK)
Taking a look ahead at next week: a flood of earnings -- 16 of the Dow 30 will report. Also watch for airline stocks, most major banks, and drug giants. Some of the tech names on tap: Microsoft, Intel, IBM, Texas Instruments, and Nortel.
From the broader economy, housing starts, CPI, Leading Indicators, all out next week. And please join Terry Keenan tomorrow for the "MONEYLINE WEEKEND" edition. That's right here on CNN.
Finally tonight: a deadbeat's dream come true: IRS computers in chaos. The agency's battle to upgrade its technology, along with budget cuts, has opened the door to tax cheats.
Steve Young looks at the struggle to track down, and the temptation among taxpayers to take advantage.
(BEGIN VIDEOTAPE)
STEVE YOUNG, CNN CORRESPONDENT (voice-over): Stare deeply into the 4,096-page U.S. tax code. Your lids are growing heavy. Your wallet's getting lighter. If you haven't mailed your return yet, you're taking it down to the wire. But if you're a little late, would the government know?
AMY FELDMAN, "MONEY" MAGAZINE: The IRS processes 200 million returns. You'd think they's have this amazing computer matching system. In fact, they don't. They have this old magnetic tape system. They've whittled down those numbers a little bit, but it's still -- numerous systems that don't talk to each other.
YOUNG: The IRS is taking its third stab at modernizing more than 140 mainframes and something like 8,000 different software programs. Nobody knows the real number, it's such a boggle.
BERT CONCKLIN, IRS: We will have a much higher order of knowledge, that is, knowledge of a taxpayer's situation, and a much more precise ability to evaluate that situation.
YOUNG: People have always tried to cheat the tax man, but they've been more emboldened in recent years. Computer chaos at the IRS means there's less chance of getting caught, though few people admit cutting corners.
UNIDENTIFIED MALE: I think a lot of guys might, but I wouldn't cheat on my taxes.
YOUNG: Cheating does appear to be a guy thing, according to a random anonymous phone poll of 1,000 Americans, conducted for "Money" magazine.
FELDMAN: It's hard to know who really cheats the most. But who says they would cheat or would be open to cheating -- men are much more open to it than women are, and the Gen X'ers, much more so than the older generations.
YOUNG: Far more men than woman say they've cheated on taxes or might. By nearly the same percentage, young cheaters outnumbered their elders.
UNIDENTIFIED MALE: I haven't really encountered it. I don't cheat on my taxes.
YOUNG: And less affluent taxpayers say they're more honest than the wealthy.
But rich or poor, deadbeats are slipping through. And the IRS has stopped pursuing more than one million tax delinquents because of budget cuts. Quite a comedown from the old days when the IRS sent mob boss and tax evader Al Capone to jail for 11 years. "This is preposterous, " Capone complained, adding, "You can't tax illegal money."
These days, the agency tries to encourage honesty with a warm and fuzzy web site. But the agency is working on a new, and it hopes, more useful site to give law abiding taxpayers a leg up.
GREGORY CARSON, IRS: The feedback we've been getting on the current site is that while all the information is there, it's not easy to access. And what we're going to do is actually try and pull information that's in the existing Web site, pull it forward, and organize it into what we're calling community-based portals.
YOUNG: It will be several months before the more serious approach lands on your PC.
(on camera): So as the days dwindle down, the IRS took to the streets to try to get Americans to ignore any faults in its computer watchdog system, and file without fail.
An elephant never forgets. You get their idea.
Steve Young, CNN Financial News, New York.
(END VIDEOTAPE)
HOPKINS: That's MONEYLINE for this Friday. Be sure to file your taxes.
I'm Jan Hopkins. Good night from New York. "CROSSFIRE" is next.
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