By most economic measures, 2006 was a great year. Despite rising interest rates, high oil prices and the sharpest housing downturn in 15 years, inflation was low, productivity rose steadily, corporate profits reached a 40-year high, the stock market soared and the unemployment rate dropped to 4.6 percent — the lowest level in more than five years. Strong hiring in service businesses like education, health care, finance, travel and entertainment more than offset big job losses in the auto and housing sectors.

But in the midst of this booming economy, more than two-thirds of Americans told pollsters that they don’t believe life for their children’s generation will be better than it has been for them. Only 27 percent of those surveyed last year thought the nation was headed in the right direction; and this year, 71 percent of respondents said the country was on the wrong track. Would you agree to these statistics?

A major reason for the widespread pessimism is that most Americans haven’t seen the nation’s economic boom reflected in their paychecks. Last year’s 1.1 percent average raise was their first real pay increase in a long time. Workers’ productivity grew an impressive 18 percent between 2000 and 2006 — but most people’s inflation-adjusted weekly wages rose only 1 percent during that time. This was the first economic expansion since World War II without a sustained pay increase for rank-and-file workers. The growth of pay raises will not be as high in 2007. They predict slower economic growth and higher unemployment this year.

It appears that the raises are going to the people at the top. These are the high paid CEO’s and other professionals. Average income has risen, but the average is being skewed by higher earners. These folks only represent a small portion of the population. Earning 1% among the rank and file is nothing to get excited about. Wall street is reporting great earnings for public companies, but that usually does not translate into income, unless we are tabulating investment gains. This lis one reason why investing to share in the bounty makes such a great idea when debt freedom has been achieved.

Many Americans are troubled by the income gap between the nation’s highest earners and everyone else — a gap that has grown dramatically in recent decades. In the last five years, inflation-adjusted wages rose less than 1 percent a year for the vast majority of households. But for the top 5 percent of earners, they jumped 2.5 percent a year. And for the top 1 percent of earners, the gains were much bigger: In 2005, the average CEO made 369 times as much as the average worker, compared with 131 times as much in 1993.

This information should not incline you to go out and look for the highest paying job you can find. If anything, it re-enforces the idea of increasing income through entrepreneurship as well as getting out of debt.

Many people filed their tax returns at the last minute. This should not be of much surprise as it is typical. Taxes can most certainly be an uncomfortable experience. This is especially true when you discover that Uncle Sam wants more than what you have paid. It can be a shocking experience. What is frustrating is that the tax code keeps getting bigger and bigger. The code is now more than sixty thousand pages long. What to do? Call your congressmen and demand change!

What happens if you have a bill that you cannot pay? After all, the rules are such that you need to pay what is owed the day that taxes are due. If you cannot pay, are you going to jail? No. The only way this would happen is if the IRS could prove that you intentionally avoided paying your tax bill. You can’t go to jail because you don’t have the money to pay your tax bill, but you can go to jail for not filing. When you do not pay, the IRS will send you a letter stating that you failed to pay, and they will start charging you interest. There is a penalty for late filing of 5% of the tax not paid by the due date for each month, or part of a month, that your return is late. Generally, the maximum penalty is 25%. But if your return is more than 60 days late, the minimum penalty is $100 or the balance of the tax due on your return, whichever is smaller.

The best thing to do to in order to avoid paying to little tax is to regularly check your withholding which can be calculated at the IRS.gov website. There, you can input your financial data and have exemptions adjusted on your w-4 at any time.

Back to the tax bill. If you cannot pay, think of what resources you have available to pay the bill. Try asking friends or family. Make up a promissory note and PAY THEM BACK! A home equity loan may work. The interest will be deductible. Normally, I would not suggest that you borrow money to pay a tax bill, but this is a debt you MUST pay. It is not wise to fool around with the IRS.

Another suggestion is to complete a Form 9465 which will allow you to go into an installment agreement where you will pay monthly plus interest. You can do this if you do not ask for an installment plan within a two year period. If the IRS approves your request, you will be charged a $102 fee. If you’re setting up as direct debit arrangement, the IRS will charge an additional $52 one-time fee. Remember that the IRS will treat this like a loan and will charge you interest.

If this does not work, and you have an economic hardship, then you can also file Form 656. This is a work out program that you can create with the IRS approval. The IRS has cautioned that this program is designed only for taxpayers in very extreme circumstances. It’s not designed for everyone with a financial problem, nor should it be viewed as an invitation to avoid paying taxes.

You need to understand that the IRS is not to be avoided. Talk to them. Let them know of your circumstances. Get someone at the organization to help you. If you avoid them, you could infact get into serious trouble.

One of the things that I notice that seems to be a common theme among my students is that much of their financial struggle has been a result of indiscriminate giving to children.

The story is much the same. Little Johnny and Susie want something that their friends have. Life cannot possibly go on with out it. All their friends have one, and they do not want to look square or not be hip. So, inevitably, mom and dad capitulate and give into their children’s demands. What this behavior does is solidify in children’s minds is that if they beg long enough and diligently enough, they can get mom and dad to pay for anything. This is a dangerous precedent, and will jeopardize parents’ financial security in the long run. They key to eliminating this threat to financial security, is to set boundaries early. It is a good idea to reward children who are frugal and learn to do things on their own. It would seem that a general disdain for work has evolved within the past three decades. Children during this time have grown up in a general period of prosperity and thus they seem to believe that they are entitled to things without putting in any effort. It is not uncommon for children to never�grow-up� when it comes to money. I have seen parents with the best intentions put down a major down payment on homes that even the parents could not afford. In other words, adult children tend to want what mom and dad have right now. They fail to realize that this type of living costs enormous sums of money over time and robs individuals of financial security.

Parents must sever the economic umbilical cord at a young age. One good idea would be to reward children for saving their money. For example, a parent could pay one dollar for every five dollar a child earns and saves. It would be a good idea to teach children the value of work. Pay them for adequate chores to be completed around the home. This needs to done within reason. It would not be a good idea to ask a child to complete a task which would be best suited for an adult.

When it comes to home buying, try to temper your children’s enthusiasm of purchasing that $400k starter home. Children need to understand that parents are not a bank or that they have access to an unlimited supply of funds. If you as a parent are going to lend money to your children, make sure you do it in the right way.

Consult a financial advisor to ensure the promissory note is written properly. For example, with a mortgage loan, the Internal Revenue Service may require that the interest rate be tied to a specific benchmark. There may be gift tax consequences if the parent forgives a large obligation. Talk about parents’ expectations upfront, outlining the worst-case scenarios: What happens if you default on the loan? Clarify that the money toward a home doesn’t give parents a vote in your design or other decisions. Put everything in writing. Meanwhile, realize that borrowing can quickly become an ugly family affair. Children who hit up parents for money should be prepared for the resentment of siblings who don’t — and potential squabbles over the parents’ estate.

Beyond home buying, many parents subsidize adult children in other ways. Some 45 percent of middle-aged workers with grown children provide financial support of about $2,500 a year on average. Many times parents are paying for one adult child or more. Before they give, parents should consider whether the money is to enhance a child’s future or subsidize his lifestyle, and make a distinction between a one-time event and a chronic condition. That’s very different from children who continually seek loans to pay off credit cards.

Remember that teaching your children good financial habits now, can save you thousands of dollars and heartache down the road.

Many of my self employed clients are facing the challenge of increased healthcare costs and being able to pay for health insurance. One of the ways to counter this problem is through the HSA or Health Savings Account.

These accounts were established in 2003 under the Medicare act. They are tax-free savings accounts that can be used to pay for medical expenses incurred by the account owner, or immediate family members.

HSA’s can be set up by any one who is already covered by what the IRS calls a “High Deductible Health Plan� This plan must have a deductible of $1050 for individuals and $2,100 for families. The minimum deductibles will rise in the coming years. As of 2007 the amounts are $1,100 for individuals and $2,200 for families.

With an HSA, you can fund it with tax deductible contributions for the full amount of the annual deductible each year for a maximum of $2,700 for individuals, and $5,450 for families. These deductible amounts will also go up. If you are over age 55, you can add even more. Presently this is an extra $700. You still have the deductibility provision on the extra $700.

The thing to remember is that an HSA is almost like an IRA. The interest and earnings in this account are not taxable as long as they remain in the account. When you take money out, you do not need to pay taxes IF the money is used for qualified medical expenses.

These can include: payments for co-payments, insurance deductibles, prescriptions, over the counter drugs, health insurance premiums, and far more.

You can use the money for other reasons but it is not a good idea. Taking out distributions for other than qualified medical expenses will be subject to a standard 10% penalty.

The HSA in our arsenal to lower the eternal tax bite.

It appears that the new democratically controlled congress is back to its old self. The propensity is for democrats to raise taxes. In the past, the idea is to create a surplus for a rainy day. But lately both houses now days tend to spend more money than ever before. It would be good for members of congress to enroll in the John Commuta.

Last week, House Democrats passed a budget blueprint that would wipe out existing tax cuts while mostly ignoring the rising costs of the alternative minimum tax. This is extremely dangerous. The AMT has failed to keep up with inflation. More and more individuals are coming under the gun with this dreadful tax. It used to be a tax for the wealthy. As middle income has risen, the tax rate has not. This is dreadful and will have a large impact on capital investment. It would act as a lead weight on the economy. With an anticipated take of $400 billion over five years, the result would be a bigger tax increase than Bill Clinton’s in 1993 — the one that helped cost Democrats control of Congress the following year.

After scrapping his promised middle-class tax cut, Bill Clinton vowed that he would only raise taxes on the richest 1 percent of income earners who weren’t “paying their fair share.” While that wasn’t exactly true — the boost in the gasoline tax and other levies hit taxpayers across the board — the rise in marginal income tax rates was mostly skewed toward the upper-income taxpayers (and more than a few job-creating small businesses).

The proposed increases are as follows: The bottom income tax rate would jump from 10 percent to 15 percent. More than five million families and individuals with no income tax liability would be added back to the tax rolls.

Come 2011, many families will be hit by a renewed marriage penalty. Consequently, 23 million Americans will then be hit with an average tax increase of $466. That same year, the child tax credit will be cut in half, costing 31 million Americans an average of $859 in more taxes.

When the damage is tallied, 115 million working Americans would watch their taxes climb an average of $1,795, with 26 million small business owners being hit more than twice as hard at $3,960. The fact that these are average figures, incidentally, does not change the reality that taxes paid by middle-class families, not just the richest 1 percent, would be scheduled to go up under the Democratic plan.

Many Democrats deny that they are actually raising taxes. The Bush tax cuts are already scheduled to expire in 2011 under current law. And the alternative minimum tax is already scheduled to gobble up another 19 million taxpayers this year without Democratic intervention.

Fiscal intelligence and responsibility is lacking in Washington. We may need to get John Commuta in office.