The fact is, we’re “analyzed out” for the rest of the year and ready for a break. Besides, our previous 2010 letters did a pretty good job of identifying what we believe are the most important and pressing issues not only this year, but rolling on into 2011 and beyond. (We summarized it all in our September Letter, if you want a quick review.)

Then again, we really can’t let the recent tax-cut “compromise” bill that was just passed by Congress slip by without some comment. So before indulging in a special Christmas wish, let’s spend a few minutes on that. Here goes.

Sure, taxes won’t go up — and that’s at least going to help avoid slowing down this mild economic recovery. But, let’s face it, when all is said and done it’ll just jack up our enormous $14 trillionnational debt. When you don’t cut government spending and government revenues go down (from lower taxes), you get a short-fall that will be made up with more borrowing by the government. And really, do we need more debt now?

Of course, there is one thing in the bill that, on the face of it, seems like a nice little idea — a kind of bone thrown to the average American. Social Security payroll taxes go down 2% in 2011. So people get to keep more of what they make. Not a lot, maybe, but it’s something. And they say there’s no Santa Claus!

But wait. In a development that’s taken some by surprise, the Social Security system looks like it’s going to be taking in less than it will have to pay out starting in 2011. Hey, that wasn’t supposed to happen until at least 2017 or so. So what gives?

Well, apparently that first big wave of aging Baby Boomers that started collecting their social security benefits just got bigger. It seems that a lot more people than anticipated will start taking “early” social security (collecting a reduced benefit at age 62 instead of waiting until age 65). The recession and high unemployment has convinced some that they need the moneynow. Add in this new cut in the Social Security payroll deduction and you’ve got less money coming in, but more people wanting to collect benefits. Doesn’t really add up, does it?

So what are our representatives thinking here? Are they unaware of this development? I find that hard to believe. Do they figure they’ll just raise the payroll tax back up in 2012? Maybe, but don’t count on it. Just look at what’s happened with the Bush tax cuts. They’re still with us. And remember they were considered tax cuts for “the rich,” whereas these new payroll tax cuts are for the regular guy.

On the other hand, maybe this is a case of more shenanigans from Congress and the Treasury in how they’ve managed and accounted for Social Security.

More and more Americans now understand that for years the government’s been collecting more in payroll taxes than were needed to fund the payouts to current recipients of Social Security. While most Americans thought that this surplus money was being set aside to pay benefits in the future, they now know it wasn’t. Congress spent it. They spent it on whatever seemed either important or expedient at the time — not necessarily in that order.

Of course, they didn’t say they were doing that. They said the money was going into something called the Social Security Trust Fund. But the only thing in that so-called Trust Fund is a bunch of IOU’s from the Treasury. No actual money.

So think about this. Now that there’s no more surplus, the government will have to borrow, i.e. add even more to the deficit and the national debt to fund current Social Security payouts. Then they’ll have to borrow yet again to replace that payroll tax surplus they were counting on spending this coming year. Remember, there were no cuts in spending to match the tax cuts they just passed.

It’s a kind of double whammy when you think about it. First, it’s shoveling even more onto the great pile of crushing national debt that’s weighing us all down as it is. Second, it’s potentiallyputting Social Security into the red far ahead of schedule with no real plan to deal with that — except to print even more money.

But maybe even more disturbing is how people will react when all this comes to light. Even though many if not most Americans these days have lowered expectations about Social Security and its ability to provide some sort of meaningful income in their retirement years, we wonder what this latest twist will do to the trust the American people have in their government.

Okay, so lots of people say they don’t trust their government. And indeed the Founding Fathers themselves didn’t “trust” government and politicians. That’s why they set up a Republic where checks and balances would serve to keep people in line. So what’s the big deal about “trust” here?

Well, we’re sitting here struggling to recover from the greatest financial crisis in 70 years, with an economy taking the first baby steps toward the growth we all hope accelerates in the coming months and years. Yet it’s important to recognize that economic growth relies on trust at some level: trust that contracts and deals will be honored by everyone — and “everyone” includes the government.

Trust matters. You can say you don’t trust politicians. You can even say you don’t trust your government. But at some point, if there’s no trust at all, things don’t work.

As for the politicians, in the end, we suspect Democrats will claim they were pushed into this bill and simply did the best they could to achieve a compromise that provided benefits for all Americans and not just “the rich” — the beneficiaries of the original Bush tax cuts. Less clear, though, are the motives of the Republicans, who will have the majority in the House of Representatives in 2011. What were they thinking when they agreed to tinker yet again with a Social Security system already gone crazy? Did they at least have some strategic plan in mind? We’ll soon find out.

The reason we think this is much more important than the typical political wrangling that’s always part of a two-party system of government is that Social Security is one of two government programs — along with Medicare — that represents a contract between government and all the American people. Everyone participates in some way. We the people have consistently done our part by paying our payroll taxes all these years. Now that we’re finding out what government’s been up to, you have to wonder whether this latest move just adds to a perception of unbridled abuse. How will government respond now? What will happen to Social Security now that the day of reckoning seems to have arrived ahead of schedule?

Well, we’re getting sidetracked from Christmas, so let’s just leave all this for another time, okay? We just wanted to weigh in on a government program that’s looking like it’s gone awry even before it gets out of the starting block.

Then again, what do we know? Charles Schwab says that the tax plan means 2011 will be bullish for stocks. And isn’t that good for most Americans? (Of course, the folks at Charles Schwab do make most of their money trading stocks, don’t they?)

Which brings us — FINALLY — to the end of our last letter for 2010…and Christmas.

I don’t know about you, but every year around this time I’m tugged in two directions. On the one hand, I’m trying to figure out whether it was a good year or a bad year. You know the drill — especially when you set personal and business goals that seemed pretty important twelve months ago. You want to know how you did.

But tugging in the other direction is Christmas calling you to forget all that and just, well, get into that good old “Christmas Spirit.”

So while I’m wondering why I didn’t lose those ten pounds, or what stopped me (for the 20th year in a row) from learning Italian…or whether I managed to bump up my net worth, or spend more time with family and friends like I planned last January, Christmas more or less steps in to set things straight.

Not that there’s anything wrong with striving or working hard to get things you really want, you understand. It’s just that a lot of times we get so wrapped up in proving ourselves, or struggling to accomplish some goal we set “out there” in the future, we wind up forgetting that some of the most important things in our lives don’t require us to prove or accomplish anything.

So it’s kind of funny how Christmas just shows up right at the end of the old year, and right before the beginning of the new one, year after year — just so you don’t get carried away with all thewhat-you-accomplished-last-year and what-you’re-going-to-accomplish-next-year stuff that can drive you crazy sometimes.

And if you’re not sure about the idea that some of the most important things in our lives don’t require us to prove or accomplish anything, I want to share something with you before we say goodbye until next year. It’s something on Youtube by the great Bing Crosby.

You know, for years Bing Crosby’s version of “White Christmas” was the biggest selling recording of all time. And it always struck me as the perfect American Christmas song, having been written by the great Jewish American song-writer, Irving Berlin, and sung by Bing Crosby, a Catholic. But I’m not talking here about “White Christmas.”

What I’m going to share with you is a clip of Bing Crosby reciting a little piece called “One Solitary Life” on one of his famous Christmas TV specials. It’s short, only about a minute and a half. But it will explain exactly why I said some of the most important things in our lives don’t require us to prove or accomplish anything. Just click here.

Did you watch it? It’s not the greatest quality video. But the message is clear as can be. And isn’t Bing’s voice just wonderful, even when he’s not singing? (You’ve probably guessed I’m a big fan.) You can’t beat a message like that delivered in a voice like that, can you?

Anyway, I do hope it helps you as much as it’s helping me to “keep Christmas,” to use a Dickensian phrase, rather than worrying so much about how I did in 2010 and what I want to do in 2011. And you know what happens when you keep Christmas well, don’t you? Well, you’ll find it right at the end of Charles Dickens’ “A Christmas Carol.” Writing about how old Scrooge has finally realized that all his selfish, material concerns really weren’t as important as the Spirit of Christmas, Dickens writes:

P.S. In case you’re not familiar with “One Solitary Life” it was written in the early part of the 20th century by a gentleman named James Allen Francis. I’ve transcribed Bing Crosby’s recited version for you here:

There was a man born of Jewish parents in an obscure village. The child of a peasant woman, he grew up in another obscure village. And he worked in a carpenter’s shop until he was thirty. And then for just three years he was an itinerant preacher.

He never wrote a book. He never held an office. He never owned a home. He never had a family. He never went to college. He never put his foot inside a big city. He never traveled two hundred miles from the place where he was born. He never did any of the things that usually accompany greatness.

While he was still a young man the tide of popular opinion turned against him. His friends ran away. He was turned over to his enemies. He went through the mockery of a trial. His executioners gambled for the only piece of property he had: his coat. When he was dead, he was taken down and laid in a borrowed grave.

Nineteen wide centuries have come and gone and today he is the centerpiece of much of the human race.

All the armies that ever marched, and all the navies that were ever built, and all the parliaments that ever sat and all the kings that ever reigned, put together, have not affected the life of man upon earth as powerfully as this one solitary life.

Richard S. Esposito, ChFC
Lighthouse Wealth Management LLC
405 Lexington Avenue, 26th Floor
New York, NY 10174
Tel: 212-907-6583/Fax: 866-924-1952

Email: resposito@lighthousewm.com