Give Yourself a Raise!

There is a strong economic argument for "Cutting the Cable TV Cord".

As of January 2008, the average monthly home cable bill was $84.59, up 21 percent from two years earlier, according to the Federal Communications Commission – 21%!

The FCC also issued a strongly worded to the cable industry saying that “cable customers have been receiving less from cable companies, but paying the same price or in some cases more…over double the rates they paid a decade ago”.

For what are Americans paying? Most cable packages are organized into multiple tiers:

· Basic Tier – includes local broadcast and public television

· Expanded Basic Tier

· Digital Tier – higher quality, number of channels requiring “digital” set-top box

· Premium Networks – HBO, Showtime, etc.

· Pay-per-View – Programs (e.g. movies) that cost $3-4 per viewing

· Video on Demand – subscribed programming delivered like a virtual “DVR”

What about cable industry regulation? Only basic cable is regulated and this is only the case if Local Franchising Authorities deem that there is insufficient competition.

This means that the vast majority of new programming features and higher end cable is not regulated. Cable companies can charge any rate they choose for non-basic tiers. With basic cable running approximately $50 across the country, many subscribers pay well in excess of the average rate of $85.

Let’s assume you are the average subscriber and you “cut the cable TV cord”. This means that you would save $85/month or $1,020/year. However, this is with post-tax money. We get paid in pre-tax money.

Assume you are in the 15% marginal tax bracket meaning you pay 15% of each extra dollar you earn in Federal Income Taxes next year (2009) from $16,700 to $67,900 per year for married, filing jointly status.

Cutting the cable TV cord is therefore equivalent to a $1,200 annual pay raise. This does not consider state and local taxes. For example, in Pennsylvania where I live, this amounts to 4.2% per dollar above federal rates.

If you are filing single and you earn an extra dollar from in the $33,951-$82,250 annual income range, then you pay 25% marginal tax rate.

Cutting the cable TV cord is equivalent to a $1,360 annual pay raise.

If you make $67,900/year - the high end of the 15% married filing jointly marginal tax rate range - then the increase of $1,200 in pre-tax “pay” is like receiving a 1.8% annual pay raise - which is probably more than you received last year.

While these “pay increases” are not equal to the 21% two year increase the cable companies enjoyed over the past two years, it’s within your control and who can say that in this economy. Best of all, there are many other benefits including more choice and flexibility that go along with these savings.